Eucatex | Twilight of the Maluf Family Empire?

If Mexico can finally imprison Elba Ester Gordillo, why shouldn’t the Brazilian finally bring down the notorious M.A.L.U.F?

The following excerpt is translated from the Estado de S. Paulo |  Portal ClippingMP. File it under «political grotesques».

SÃO PAULO – A São Paulo court has ordered the freezing of R$ 520 million from the Maluf family business Eucatex.

Or about US$ 260 million.  Eucatex, a eucalyptus grower, was founded by in 1951, thrived under the military dictatorship — which named Maluf mayor of the capital and later governor of São Paulo state. He is featured in a World Bank list of 150 notable corruption cases.

The measure was taken at the behest of the São Paulo state prosecutor’s office, which denounced insider transactions within the Eucatex group as part of a fraudulent effort to transfer Eucatex assets off the books and avoid payment of future court-ordered reimbursements as a result of various law suits against Maluf, accusing him of embezzling public funds while serving as mayor of São Paulo.

[The court] found that the prosecutor’s indictment demonstrates “the possibility of fraudulent reporting of assets” by Eucatex, but the ruling may be overturned if Eucatex can show that the penalty will drive the company into bankruptcy.

As the Folha de S.Paulo revealed in March, the prosecutor’s office believes that the family is trying to escape payment of court-ordered monetary awards by transferring assets to a newly founded member of the group, ECTX. Prosecutors see the transaction as fraudulent and believe its purpose is to “dehydrating” Eucatex of its assets.

Back in March, Eucatext VP José Antônio Goulart de Carvalho, denied the accusation. Goulart said the asset transfer to ECTX was undertaken because the new company would represent the vanguard of a new, more transparent governance model.

In July 2012, Eucatex transferred R$ 320 million of its assets to ECTX. In May and October, Eucatex released a Material Event statement to the market, saying it had initiated a “process of share reorganization” in order to transfer its assets.

ECTX, according to Goulart de Carvalho, is waiting for CVM authorization to launch an IPO in the capital markets.

Legal Troubles

Eucatex and the Maluf family are defendants in a case in which prosecutors have moved for the return of US$ 153 milhões that was supposedly stolen from the São Paulo city government, wired overseas and then funneled into Eucatex through various financial transactions.

There is also an open case on the Isle of Jersey involving the transfer of money by Maluf family members.

Overseas companies with ties to the Malufs have been ordered to reimburse US$ 28 million to the city of São Paulo, funds thought to be the fruit of fraudulent dealing involving the city government. These companies have appealed the decision.

In the present case, the Jersey court also ordered the freezing of Eucatex shares belonging to foreigners with ties to Maluf.

In a statement, Eucatex says it was not officially notified of the asset freeze involving R$ 520 million as ordered today by the São Paulo court.

There is another open case against Maluf, in fact, O Dia notes:

In the federal Supreme Court, Maluf and family were charged in 2011 on allegations of money laundering and using Eucatex to camouflage the misappropriation of public funds during Maluf’s term as mayor, from 1993 a 1996.

Maluf’s status as a sitting federal legislator entitles him to be tried by the Supreme Court.

Without Notice

In an official statement, the company says the motion to block its accounts has already been applied for by the prosecutor in 2009, and the application failed both in the first instance and on appeal.

According to Eucatex, the accusation is groundless given that the company’s net assets increased after the cretion of ECTX, from R$ 997 million in 2011 to R$ 1.1 billion at year’s end 2012.

“It should be recalled that Eucatex is a publicly traded corporation, with hundreds of shareholders, among them the federal legislator Paulo Maluf, who is not an executive of the company or even a member of  the board of directors,” the company added.

True: it is currently led by Maluf’s son Flávio. Interpol has an open arrest order on Flávio, from what I read. Otávio Maluf is chairman of the board.

The creation of ECTX was part of a general restructuring of the company with the goal of qualifying for the Novo Mercado listing segment of the São Paulo Stock Exchange, reserved for companies with superior governance standards and practices. The new company has been waiting since December for the CVM to rule on its registration as a publicly traded company.

Deals on Wheels | The Railway Pipeline

Source: Portal ClippingMP.
Authorship: Guilherme Soares Dias | Valor Economico

I have recently received an incentive to closely and constantly keep an on the Brazilian transportation sector as a whole — not just what the ALLs and LLXs are up to.

Intercity passenger trains are being readied to circulate again in at least nine Brazilian states with plans under active study. In most of these cases, the intention is to reuse existing freight lines for medium-velocity passenger service. The plans provide for management by private sector concessionaires and ticket prices competitive with intercity buses, in a attempt to take some of the strain off crowded highways.

Brazilian roadways — constantly subject to apocalyptic weather conditions, let it be said — are a nerve-wracking way to get around, although mirabile dictu the rodoviários — bus stations — hum industriously all year long, and especially around Christman, when Northeastern families make the trek to be temporarily reunited.

In all, 1,900 km of so-called “regional trains” will get off the drawing board sometime this year. The federal ministry of transport has detailed plans for six stretches of railway, while SUDECO — the Superintendency of  Center-West Development examines two rail lines in the Brasília region. The state of Minas Gerais is studying three new lines and São Paulo is planning another five.

After a study by BNDES, the national development bank, issued a list of  64 railway lines that could be used to move passengers, the transport ministry chose 14  priority project for evaluation in 2011. Two years later, six of these are underway under the auspices of BNDES and one another, under construction by the state of Minas Gerais, should be ready by the the end 2Q13.

After the studies are conducted, the proposals will be opened up to public discusion, after which the transport ministry intends to assess tender offers for projects starting in 2014. Bids closest to completion so far include the Londrina-Maringá connection, in  Paraná, and the Bento Gonçalves-Caxias do Sul connection, in Rio Grande do Sul, where feasibility studies have been conducted and public audiences will begin next month in which residents and local governments will have their say.

According to Euler Costa Sampaio, coordinator of studies on regional and passenger rail in the transportation ministry, the rail lines will likely operate on the basis of a Public-Private Partnership or a concession model. “We want to take advantage of the new rules for the railway sector, which instituted right of way [for passenger trains] on freight train lines,” he said..

Along certain stretches, such as the connection  Londrina-Maringá, the plan is to create a double-track road, given the heavy cargo loads resulting from the line’s proximity to the Porto of Paranaguá. Studies will show that demand will be sufficient for an all-passenger service, says Sampaio. Estimated demands runs around 36,000 passengers a day and 13 million passengers a year.

Another challenge for the regional lines will be entering urban zones, in places where they might cross paths with municipal transport. “We will have to provide quality and accessibility in order to compete with the interstate bus lines. Fairs will have to be in line with what it costs to travel by bus”, a Transportes official said.

In some cases, such as the Salvador-Alagoinhas connection in Bahia, whose study will be filed in June, indications are that the rail line can be extended another 40 km to Feira de Santana. With its  568,000 inhabitants, the city is the second most populous of Bahia state and is connected to Salvador by Highway BR-324, which sufferes from intense passenger and cargo traffic.

Another stretch of track featured in the  Sampaio reporte is the São Luís-Itapecuru-Mirim triangle, in the northern state of Maranhão, where the largest petrochemical center in the Northeast is under construction.

In addition to the six rail linkages already under study, the transport ministry expects to contract studies for another six: São Cristóvão—Laranjeiras (SE), Recife—Caruaru (PE), Campos—Macaé (RJ), Itajaí— Rio do Sul (SC), Campinas—Araraquara (SP), Santa Cruz—Mangaratiba (RJ), and Bocaiúva—Janaúva (MG).

Os projetos preveem que os trens atinjam de 80 a 140 quilômetros por hora para encurtar, em alguns casos, o tempo de percurso atual. É o caso do trecho entre Brasília e Goiânia que teria viagens de 50 minutos, enquanto as de carro e ônibus duram de duas a três horas. O trecho é estudado pela Sudeco. A linha seria de uso misto, sendo aproveitada para transporte de cargas, com ligação da Ferrovia Norte-Sul em Anápolis (GO), onde está prevista uma parada.

O diretor-superintendente da Sudeco, Marcelo Dourado, ressalta que 6 milhões de pessoas moram no entorno da futura linha e devem ser beneficiadas pelo novo modal de transporte. Ele destaca ainda que haverá melhora no escoamento de produção do agronegócio. A região concentra o segundo Produto Interno Bruto (PIB) meso-regional só perdendo para Rio-São Paulo.

“Essa ligação mais rápida vai incentivar a industrialização e a conurbação da região”, acredita Dourado. Os estudos estão sendo concluídos e a intenção do órgão é que a licitação ocorra até o fim do ano, as obras comecem em 2014 e sejam concluídas em até sete anos. O custo estimado é de R$ 1 bilhão. A Sudeco estuda ainda a ligação entre Brasília-Luiziânia (GO), onde já existe linha férrea e seria necessária adaptação para o trem de passageiros. “Essa seria uma intervenção mais rápida e barata. Seriam necessários dez meses e R$ 90 milhões de desembolsos para viabilizar a linha”, afirma Dourado. O trecho seria atendido por um Veículo Leve sobre Trilho (VLT). De acordo com o superintendente da Sudeco, os dois projetos têm chegada prevista na rodoferroviária da capital federal e devem desafogar as rodovias do Distrito Federal.

O governo federal prevê ainda estudos de um trem ligando as cidades do Triângulo Mineiro e outro mais ousado, da Superintendência do Desenvolvimento do Nordeste (Sudene), que planeja o “Trem da Costa Dourada”, linha de 2 mil quilômetros ligando Salvador ao Delta do Parnaíba (PI) pelo litoral, passando pela maioria das capitais do Nordeste. Apesar do apelo turístico do projeto até mesmo os estudos encontram dificuldade para sair do papel. “O Ministério do Turismo tinha se comprometido a bancar, mas ainda não conseguimos a liberação da verba. Agora estamos negociando com o governo espanhol para financiar os estudos”, diz o superintendente da Sudene, Luiz Gonzaga Paes Landim. Ele garante que o trem é viável e afirma que o projeto poderia ser “fatiado”, com início nos trechos de maior apelo turístico como Salvador -Praia do Forte (BA), Recife-Porto de Galinhas (PE), Natal-Praia da Pipa (RN) e Fortaleza-Canoa Quebrada (CE).

Para o coordenador de transporte de passageiros do Laboratório de Transportes e Logística (LabTrans/UFSC), Rodolfo Philippi, os projetos atuais estudados pelo Ministério dos Transportes terão viabilidade reforçada pelo transporte urbano, uma vez que o aproveitamento de linhas já existentes vai possibilitar estações no centro das cidades. “Em locais maiores como Londrina, Maringá e Caxias do Sul poderá haver mais de uma estação incentivando o locomoção das pessoas dentro das cidades”, diz.

Já o presidente da Associação Brasileira da Indústria Ferroviária (Abifer), Vicente Abate, recorda que nas décadas de 60 e 70 os trens de passageiros chegaram a transportar 100 milhões de passageiros por ano. “Com o desinvestimento do governo na rede, os trens de passageiros foram perdendo competitividade e começaram a ser desativados e foram substituídos pelo transporte de rodovias. Agora devemos ter novo momento de retomada do setor”, considera.

Hoje, apenas duas linhas férreas recebem transporte de passageiros no país: a Estrada de Ferro Carajás, entre São Luís-Carajás (PA), e a Estrada de Ferro Vitória-Minas entre Vitória e Belo Horizonte. Ambas são mantidas em projetos sociais da Vale e movimentam juntas 1,5 milhão de passageiros por ano.

Good fodder for a private Wiki on the subject.

Water Over the Dam | Will Investors Take the Plunge?

Source: Brasil Econômico | 24 January 2013
Tenor: Market is moderately cautious over energy-sector pricing reform
Excerpt | Translation: C. Brayton

Negative pressure on shares is transitory and reflects the continued uncertainty of investors. The BM&F Bovespa’s electricity and energy sector index (IEE) is down 1%.

The reduction in energy bills announced by the president on January 23 has had a limited negative impact on the shares of electricity generators, transmitters and distributors.

Pedro Galdi,chief analyst at the SLW Corretora brokerage house, explains that the government has already absorbed part of the losses suffered by some companies. 

The IOU of Paulo Maluf | Jersey Court Sets Penalty

Maluf inaugurates the Roberto Marinho bridge

As the Brazilian culture industry begins to respond to government subsidies and incentives, it would be neat if someone took up the challenge of making a biopic on Paulo Salim Maluf or PFL Senator Antônio Carlos Magalhães.

Source: Folha de S.Paulo.
Translation: C. Brayton

A Jersey court has ruled on the amount that current federal deputy Paulo Maluf (PP-SP) must return to the city government of São Paulo in a case involving the diversion of between 1997 and 1998 of public funds: US$28.3 million, equivalent to R$ 57 million at current exchange rates.

The sentence ordering the repayment was handed down on Friday, January 18, in Jersey, a Channel Island off the English coast.

When the court found Maluf guilty on November 16, 2012, the only pending issue was the original value of the assets misued: US$ 10.5 million

Caption: Paulo Maluf photographed at the headquarters of Eucatex, his family business.

The court found that this was the sum of money misappropriated as of February 1998 and corrected the sum as of the date of Maluf’s conviction, on November 16, 2012. Interest was set at 1% above prime, using T-Bills as a reference.

Maluf was also ordered to repay the plaintiff’s legal costs. Estimates are that these costs could run as high as  R$9 million, but the city has not yet produced an official calculation of legal fees spent on British solicitors since February 2005.

Maluf himself was ordered to return the funds because the court concluded that he and his son Flávio controlled two offshore companies, Durant International and a Kildare Financial. that received a total of US$10.5 million.

Maluf denies controlling these firms.  The Jersey court possesses documents signed by Maluf.

According to the Jersey court, the money was misappropriated during the construction of Àguas Espraiadas Avenue (later renamed for Globo chief executive Roberto Marinho) between 1997 and 1998, when Celso Pitta, on Maluf’s recommendation, was at the helm of the city government. In its ruling, the court took special note of the fact that the scheme was executed when Maluf ran the city, between 1993 and 1996.

A Jersey court has ruled on the amount that current federal deputy Paulo Maluf (PP-SP) must return to the city government of São Paulo in a case involving the diversion of between 1997 and 1998 of public funds: US$28.3 million, equivalent to R$ 57 million at current exchange rates.

The sentence ordering the repayment was handed down on Friday, January 18, in Jersey, a Channel Island off the English coast.

Jersey court holds Maluf responsible for siphoning off US$ 22 million.

When the court found Maluf guilty on November 16, 2012, the only pending issue was the original value of the assets misued: US$ 10.5 million

[Photo caption] — Paulo Maluf photographed at Eucatex, his family business.

When Maluf was governor, he had a highway built especially to ease his commute between the rural Eucatex and City Hall.

The court found that these funds were misappropriated in February 1998 and ordered that they be corrected as of the date of its ruling — November 16, 2012.  Interest rates were set at 1% above prime, using T-Bills as a reference.

Maluf was also ordered to repay the plaintiff’s legal costs. Estimates are that these costs could run as high as  R$9 million, but the city has not yet produced an official calculation of its legal fees spent on British lawyers since February 2005.

Maluf himself was ordered to return the funds because the court concluded that he and his son Flávio controlled two offshore companies, Durant International and a Kildare Financial. that received a total of US$10.5 million.

Maluf denies controlling these firms.  The Jersey court is in possession of documents signed by Maluf.

According to the Jersey court, the money was misappropriated during the construction of Àguas Espraiadas Avenue (later renamed for Globo chief executive Roberto Marinho) between 1997 and 1998, when Celso Pitta, on Maluf’s recommendation, was at the helm of the city government.

Maluf is legendary for his «pharaonic» public works projects, the most infamous of which is the Big Worm — Minhocão, an elevated throughway that, in the words of local motorists, mostly serves as a congested bridge between one giant pool of traffic congestion and another.

In its ruling, the court took special note of the fact that the scheme was executed when Maluf ran the city, between 1993 and 1996.

Lula and Haddad of the PT suck it up: Grip and grin with Maluf is price of PP support in municipal elections. Opposition parties also sought the Malufist imprimatur

 

Brasília | Oligopolies Under Observation in 2013

Oligopolies in the Media Market

Source: Folha de S. Paulo | Brasilianas.Org.
By: Vladimir Safatle
Translation: C. Brayton

In recent weeks, Argentina made fresh headlines in Brazil with stories on clashes over the enforcement of Argentina’s so-called “Media Law,” which defines a new regulatory order for companies in the news and entertainment sectors.

Some of these new provisions, and especially those related to combating monopolies, have been viewed as signs of a vengeful State intent on limiting freedom of expression, as in the case of the archrivalry between President Kirchner and the Clarín group.

Leaving aside these heated public conflicts, however, the Argentines are engaged in an important debate that deserves to be treated more dispassionately. It seeks an answer to the question: “Do we or do we not need laws that restrict the concentration of ownership in the media sector?” That is to say, can we successfully argue that concentrated media ownership does not necessarily affect democratic practices?

At this juncture, it is worthwhile remembering that the global media market is currently among the most oligopolized in the world.

What is more, as we gather from  reading between the lines of the recent case involving Rupert Murdoch, this state of affairs really does affect our political life.

Murdoch built an empire of TV stations, newspapers, magazines, radio stations, book publishers, movie theater chains, and Internet portals that gave him the ability to mold debate, pressure governments and interfere in politics to the extent that it promised the American general  David Petraeus its unlimited support should he choose to run for U.S. president.

Situations like this are not exclusive to the Anglo-Saxon world, however. Recent decades have witnessed a brutal, highly negative trend toward consolidation of the sector that affects not only our politics but also our culture.

A single group like Time Warner, for example, exercises simultaneous control over production, distribution and development of new techniques. In this case, we are justified in saying that laws barring the formation of oligopolies is a way for society to defend itself against the coerced uniformity of opinion and the silencing of alternative voices.

Opponents of this viewpoint might reply that a more fragmented market would leave media companies more vulnerable to government pressure. This argument is not without merit.

The solution to this aspect of the problem, however, is not the perpetuation of the other aspect. Strategies are needed in order to prevent governments from framing the news according to their own interests.

In Brazil, this would imply limiting government influence by drastically cutting spending on government advertising — which should be confined to public service announcements — and enforcing laws such as the ban on politicians owning media outlets. Clear and absolutely fair criteria for the use of publicity budgets by state-owned firms should be developed.

São Paulo’s state-owned and publicly traded Sabesp might make an interesting case in point. It frequently walks the corda bamba between public service announcements and government propaganda, as is “this is your current government at work for you.”

But this could be an artifact of my own subjective impression as a couch potato. This might make a good little feature article to research.

Where are all the Sabesp TV spots stored? What PR techniques do they apply? Do they amount to the use of public money to promote a specific administration?

Anyway, I have always thought that the «monthly payola» cases should be combined and subjected to a parliamentary commission of inquiry — CPI — of the PR industry at the heart of these and other scandals.

After all, the exact same mechanism was used in several of these cases: Publicity services were contracted by a state or municipal government for a given cultural or sporting event — Rock in Rio, an Enduro motorcycle event in Minas Gerais — and then publicity fees were accounted for as having been paid to fictional or purpose-built Potemkin village PR outsourcers.

In fact, however, most of these PR funds were skimmed off for use by political and private parties. Enter the hidden camera video of political operators stuffing their socks and jocks with bundles of cash and you have yourself a classic Brazilian “mountain of money” scandal.

In any event, big PR has a demonstrated capacity for financial legerdemain — think of Duda Mendonça as well as Marcos Valério. Perhaps the second most common source of laundered campaign money: state-owned companies like Furnas in Minas Gerais.

The Vanguard of the Obsolete

Gilberto Maringoni e Verena Glass of the IPEA provide a detailed historical narrative of media law development in Latin America, explaining why regulation produced in the 1930s-1960s no longer applies.

Another factor that could not have been anticipated was the invention of digital technology and the deterritorialization of media companies through the use of virtual networks.

Before the digital revolution (1980- 90) news organizations had to be located in the country where they operated. This was not merely an arbitrary legal requirement, based on nationalist developmentalism. At this time, the entire network of businesses, and especially in the advertising sector and media finance, was anchored in calmer waters.

Now, however, an ISP, Web portal or cable TV provider can transmit content from any part of the world, without having to use antennae or sophisticated broadcast equipment.

The main problem is that the ISPs and cable operators are not classifiable as content and information producers as defined by the current, outmoded legislation.

The privatization of Latin American telecoms in the 1980s-90s, opened up a veritable  Pandora’s box. State-owned telephone monopolies were auctioned off. It may be that the authorities who sponsored this policy were blind to the about-face that would make possible a state of borderless media convergence.

Telephone operators, for example, which during the 1990s were limited to long distance voice communication, underwent a consolidation that two decades later would turn them into the biggest Internet providers in Brazil and arm them with the same political firepower as any traditional TV network.

As things stand, TV, radio, telephone, film, literature, music, data transmission, navigation data and many other services can be tapped using nothing more than a single smartphone.  Each of these functions, however, must still comply with rules specific to its sector.

ISPs use technology to produce and distribute content. To the extent that they are not subject to the old legal norms, their content can be produced anywhere in the world and transmitted to any other, with adjustments made for local characteristics [such as  language].

At the same time, now that global media maintains offices in many different countries, a complex series of loopholes in current local laws has been used to legitimate the local operation.

From the same symposium,, Denis de Moraes:

Brazil is in the  vanguard of obsolescence [sic] in terms of its regulation of the media. Its radio and TV regulator remains one of the most outmoded in Latin America. To date, the congress has made no progress toward regulating Articles 220 and 221 of the 1988 Constitution, which respectively ban monopolies in the mass media and gives preferential treatment to TV and radio stations “serving education, artistic, cultural and informative ends,” as well as “the promotion of national and regional culture and a plan of stimuli to independent productions who qualify. .The lack of action by successive governments in this area is just plain alarming.

Media a Priority for 2013

The president of the ruling PT has said that political reform and media regulation are the top priorities of this year’s Congress. The quote is from November of last year.

Rui Falcão said his party has at least two goals for 2013: A new regulatory framework for the media and political reform.

The party will begin to execute its strategy — calling on the federal president to issue a bill that regulates the media —  the party will include the issue in its agenda for the meeting of the national leadership.

Last week, Falcão told the international press that he hopes the presidency will send down a bill regulating communications in Brazil. “It is not our party that wants to pass enabling legislation for these provisions of the Constitution, it is the congress as a whole. We hope that our government will send down a bill establishing a regulatory framework that will increase freedom of expression and eliminate any possibility of censorship of the established media, regulating provisions in the Constitution that have yet to get off the drawing board.”

Brazil | «IPOs to Quintuple in 2013»

Source: Portal ClippingMP « Valor Econômico
By: Talita Moreira and Ana Paula Ragazzi
Translation: C. Brayton

S. PAULO — After a lean year for initial public offerings, with a mere R$ 4.3 billion in play — the lowest amount since 2005 — major corporations will likely reconsider floating, or refloating, shares on the stock market this year.

Is that a lot or a little? In tech IPOs alone, the Nasdaq led the NYSE-Euronext 17 to 15 this year — I am reading from a press release. In 2004, 69 domestic companies and 11 qualified closed-end funds went public on the NYSE, for a total volume of 80 IPOs and $45 billion. Should ADRs not be counted as well?

Adeus, Kassab

Life is what happens to you while you’re busy making other plans.

The conservatively inclined but civic-minded Estado de S. Paulo often does a fine job of cross-checking lists of political promises with lists of practical achievements.

Today’s paper runs a post mortem on the performance of outgoing mayor Gilberto Kassab.

Source: Portal ClippingMP.| Estado de S. Paulo
Translation: C. Brayton

A mere 123 of the 223 objectives listed at the outset of the Kassab administration — 55.1% of the total — were carried out, according to the list of objectives announced in 2009.

The mayor says the city government’s “efficacy rate” is 81%, but this figure includes projects not yet completed. Among the main projects promised but not completed on time was the construction of three hospitals, the creation of more day care vacancies, drainage projects, and 60 km of bus corridors.

As part of his “efficacy rate,” the mayor counts both finished and unfinished projects, but says we will leave the city in better shape and with more resources.

The final report of Agenda 2012, the official planning document announced by Kassab in 2009, shows that only 123 of its 223 commitments — 55.1% of the total — have been met as Kassab’s four years in office come to a close. Nevertheless, the mayor says that the city’s “index of efficacy” stands at 81%. This number includes projects that were initiated but not completed.

This was the first time a São Paulo mayor has published a planning document detailing the goals of the administration.  The publication of such a planning document was ordered by the city council in February 2008 in an amendment to the city’s Organic Law that gives incoming mayors three months to define objectives to be met during their term in office.

Bureaucratic and regulatory problems, as well as difficulties in obtaining environmental licenses account for at least part of Kassab’s performance. Among the principal works not completed on time were hospital construction, an increase in daycare capacity, drainage works and 66 km of bus corridors.

These performance were neverthless cited in order to raise the city’s “efficacy rate.” According to the mayor, this index takes into account the bureaucratic status of the city’s projects — contract complete, property rights established, bidding process executed — to measure how far the city has come to completing the road to its objective.

Yesterday,  Kassab said he is leaving “a better city, with more resources” to mayor-elect  Fernando Haddad (PT), who has until March to define his goals.

Actually, Haddad published a highly detailed plan of government during the election campaign.

My browser thanks the candidate for dialing down the Flash the next time around, by the way.

Whether Haddad will do any better at minimizing bureaucratic friction is the question.

Kassab finishes out his second term with very negative polling numbers: 42% rate his government as bad or the worst. Only 27% rate it as good or best. These figures are the worst for any mayor in history except Celso Pitta (1997-2000), with 74% negatives.

Kassab was Pitta’s secretary of urban planning.

It is odd that the Estado does not touch on the Nova Luz project — urban renewal in a  historic downtown neighborhood abutting present-day Cracolândia — Crack City Sambodia.

On a Personal Note

Our little neighborhood here in the Vila was the focus of some of the parks development that the Kassab government promoted.

Our local praça is now a popular spot, with kids playing, dogs sniffing the Internet of dogs and urban DIY greengrocers importing their household grown compost.

It was also the site of a fatal police shooting in which a local resident was shot eight times during a police stop and search. This happened 25 meters from our front door.

 

The park is not exactly a world-class urban green space, however. As an architect neighbor and another, an engineer, remark, the materials used for the pedestrian paths — sand and brick dust on either shoulder — will soon wash down into the abutting creek.

The playground equipment is dangerously far from up to specs.

If you ask me, the city’s most typical project is the urban reforestation project the city eventually got around to doing on our next door neighbor’s property: A moribund, fenced in sapling bearing the brand of the city environment secretary.

Remember “Ozymandia”?

Look on my works, ye mighty, and despair!

 

In short, long live the Potemkin village.

Health & Stealth & Wealth | The Ghost NGOs of Duque de Caxias

Ever since the “bloodsucker” case of 2006 — shameless skimming from a budget line item intended for the noble purpose of universalizing the availability of ambulance services — it has been apparent that the Brazilian federal government needs to lean more closely over the shoulders of state and municipal recipients of federal aid.

The founding of the CGU — the audit authority of the federal executive — in 2001-2 was a step in that direction, and came to be used more aggressively during the Lula years.

Controversy remains, however, over who to hold responsible, and when, and why, as well as how to investigate and prosecute. Ticklish constitutional issues abound.

Take the example, of presidential candidate and former São Paulo governor José Serra, Cardoso’s health minister at the time, who was photographed at an ambulance-christening event in a frontier state in the company of several “bloodsuckers.” There was no evidence linking him to the scheme, but arguments raged about where the buck should stop.

In recent years, it was a failed 2007 congressional inquiry — The CPI of the NGOs — and then the current federal president who introduced the topic of “ghost NGOs,” in the most recent case amid a minor scandal in the Ministry of Sports and elsewhere in the permanent bureaucracy.

As another current case of “ghost NGOs” at work indicates,

More than one third of funds funneled to the conspiracy came from the federal government. Federal prosecutor finds lack of effective oversight and cost controls.

Reported by: Raphael Gomide

Duque de Caxias is a city of some 900,000 in Rio state, by the way.

Brazilian Brokers to Change Exchange?

• BM&FBOVESPA wants reform of brokerage rules — Portal ClippingMP

Sensitive to the challenging conditions faced by brokerage houses and issuers, the BM&FBovespa is studying a plan to restructure the Brazilian brokerage industry. The rules require intensive changes, says Edemir Pinto, CEO of the BM&FBovespa. “The time has come to review this whole system we have here in Brazil.,” he said.

The stock exchange has formed a working group with Anbima, the association of capital and financial  markets companies, and Ancord, the national association of brokerage houses and distributors.

The group will analyse the market and propose changes to the federal government. The Banco Central and the Brazilian SEC-equivalent CVM) support the study and dispatched personnel to follow the process as auditors.

For a September 2012 interview with Pinto by the CME Group — in PT-Br — see here.

The two discussed a buzz-making remark by  Bill Clinton, «I would bet on Brazil first,” and outlined a partnership with the CME Group to offer S&P 500 e Ibovespa futures through the Globex and PUMA order routing platform.

The global preferred strategic partnership between BM&FBOVESPA and CME Group allows their customers to trade contracts of both exchanges in real time.

Risk Shopping | Brazilian Cases in Point

Source: Folha de S.Paulo.

Risk evaluation agencies assigned high ratings and low risk to several Brazilian banks that recently failed.

Banco BVA, for example, received a BBB rating from ratings agency LF Rating four days before suffering a Central Bank intervention on October 19.

Austin Rating assigned  BVA a BBB+ less than two months before its collapse.

The same occurred with  Cruzeiro do Sul, liquidated in September with R$ 3.1 billion in debt, and  Panamericano, which underwent a federal intervention on November 9, 2010.

Esteemed customer: you will be able to access funds in your StarCash account until December 13, 2012. Starting December 28, 2012, control will pass to Banco Bonsuceso, which will deal with new cards, card replacements, and so on

Risk ratings affect companies in one of two ways. On one hand, investors use the ratings as a guide to potential investment. Some funds invest exclusively in paper declared risk-free .

On the other hand, financiers evaluate risk using these ratings: the lower the rating, the more expensive it is to borrow money.

With the blessing of the ratings agencies, pension funds such as Petros, Brazil’s second largest, is able to invest in riskier fixed income paper, stamped “safe” by the agencies.  Petros had R$ 80 million in three funds with ties to BVA and invested in the bank’s bonds.

Shopping for Ratings

A practice still allowed by the market aggravated the problem: the so-called “shopping mall of ratings.”Companies needing positive ratings request a preliminary report from a given agency. If the rating is low, they try again with another agency, and so on until receiving the rating desired.

Since it is not yet required to make public these preliminary findings, the investor never suspects that the company has a bad credit rating.

To counter the negative effeects of this practice, the Brazilian SEC — the CVM — will as of January 2013 require the publication of preliminary ratings reports on the Web site of the rating agency

“This new CVM rule should mitigate the «ratings shopping center»  deve mitigar esse shopping de ratings,” says Rafael Guedes, CEO of Fitch Ratings Brasil.

“In Brazil, every agency has its own criteria, and there are major discrepancies,”say Sergio Garibian, ratings director, Standard & Poor’s, Latin America.

In February 2006, Cruzeiro do Sul exited its contract with Fitch, which had assigned it a rating of BB+(bra),  with “elevlalted risk of default.” The same year, the bank signed with Moody’s, which assigned it Baa1 for long-term deposits, and then three months later raised it toA3. Both are considered indicative of investment grade.

Responding to these contradictions, federal deputy Eduardo da Fonte (PP-PE) presented a bill that would make agencies responsible for “damages caused by intentional or negligent conduct in arriving at risk ratings.

“It is not norml for some agencies to classify a bank as low-risk and then watch it go out of business a few days later,” Fonte says. “Either the bank coopted the agency or else the agency is not qualified to rate anyone.”

Erivelto Rodrigues, CEO Austin Rating, says the “shopping mall of ratings” only occur in structures such as FIDCs — investment funds in rights to future receivables.”I don’t believe this happens with companies and banks,” he said.

Para Paulo Rabelo de Castro, CEO of SR Rating, which classified none of the banks in question, “strict regulation is required at a moment when the government is trying to stimulate the market for debentures.”

Brazil’s largest pension fund, Previ only accepts ratings from three agenices: S&P, Moody’sand  Fitch. Funcef, meanwhile, buys private debt instruments that are evaluated by at least one ratings agency, it matters not which.

Funcef was holding notes from both  PanAmericano and Cruzeiro do Sul. In the  Cruzeiro case, it received its entire investment back thanks to a special guarantee clause.

The Risk Mall 101

I can hardly claim to be an expert on the subject, but a study byVasiliki Skreta and Laura Veldkamp — «Ratings Shopping and Asset Complexity: A Theory of Ratings Inflation» seems like a good place to start. The abstract:

Many identify inflated credit ratings as one contributor to the recent financial market turmoil. We develop an equilibrium model of the market for ratings and use it to examine possible origins of and cures for ratings inflation. In the model, asset issuers can shop for ratings — observe multiple ratings and disclose only the most favorable — before auctioning their assets.

When assets are simple, agencies’ ratings are similar and the incentive to ratings shop is low. When assets are sufficiently complex, ratings differ enough that an incentive to shop emerges.

Thus, an increase in the complexity of recently-issued securities could create a systematic bias in disclosed ratings, despite the fact that each ratings agency produces an unbiased estimate of the asset’s true quality.

Increasing competition among agencies would only worsen this problem. Switching to an investor-initiated ratings system alleviates the bias, but could collapse the market for information.

The lede:

Most market observers attribute the recent credit crunch to a confluence of factors: excess leverage, underestimation of risk, opacity, lax screening by mortgage originators, improperly estimated correlation between bundled assets, market-distorting regulations, a rise in the popularity of new asset classes whose risks were diffcult to evaluate, as well as credit rating agency conflicts of interest.

This paper investigates the misrating of structured credit products, widely cited as one contributor to the crisis. Our main objective is to critically examine two arguments about why ratings problems arose and to show how combining the two could produce a ratings bias that imperfectly informed investors would not anticipate.

One argument focuses on asset issuers who shop for the highest ratings. The New York Times explains: The banks pay only if [the ratings agency] delivers the desired rating . . . If Moody’s and a client bank don’t see eye-to-eye, the bank can either tweak the numbers or try its luck with a competitor like S&P, a process known as ratings shopping.

A final thought: the Sadia and Aracruz derivatives crises of 2007 — exchange rate swaps — seem to illustrate the same logic. Risky assets kept off the books until the roller coaster came to a full stop..

In reality, the two largest agencies, Moody’s and S&P, account for 80 percent of market share. When a structured credit product is issued, the issuer typically proposes a structure to an agency and asks it for a \shadow rating.” This rating is private information between the agency and the issuer, unless the issuer pays the agency to make the rating offcial and publicize it. In the model, an asset issuer can purchase and make public one or two signals about the payoff of an asset. We call these signals “ratings.” After choosing the number of ratings to observe and which ones to make public, the issuer holds an auction for his assets. After each investor submits a menu of price-quantity pairs, the asset issuer sets the highest market-clearing price for his asset, and all investors pay that price per share.