Currency Wars | Welcome to the Desert of the Real

• O Brasil acorda para a guerra cambial | Brasilianas.Org.

The daily column of Luis Nassif, the notable Brazilian business and economics «spreadsheet head».

Last Friday, March 9, 2012, will be regarded by posterity as the day Brazil officially awakened to the currency wars, which for so long have eaten away at the fabric of Brazilian industry.

The federal treasury is taking stronger measures against the entry of speculative dollars, while last week, the Banco Central accelerated the lowering of interest rates, cutting the basic rate by 0.75%. And most importantly, President Rousseff has cut out the middlemen, stating an official position of her own regarding the impending tsunami.

Personally, I pray for a return to the golden years of USD=BRL 2.50. I could afford to stay in three- or four-star hotels and wander the country at will. Now, the cost of living is getting close to parity with the cost of living in New York. The Enigmatic Mermaid has taken to referring to the local bakery O Novo Ladrão — the New Lion — as O Novo Ladrão, for jacking up its prices, as the local gas station also did during a fuel delivery strike last week.

Brazil | Federal Home and SME Loans Survive Budget Cuts

Underlying the battle in the Congress this week over the increase in the minimum wage — the opposition leader in the Senate, Aécio Neves, has just announced he supports the lower rise, silencing loud noises from the former presidential candidate of his party as well as disappointing the major trade union conferderations —  is a project to cut the federal budget this year while maintaining development subsidies.

The local press, except for the leftist Carta Maior — the editoriographic above is from the cheerfully pelego DComércio — makes no mention of this linkage, but the factoid of the hour is that each additional real committed to the wage adjustment is R$15 billion unavailable for social and economic development programs.

As at home, the tactic of the opposition is Starve the Beast, as we saw in the purely symbolic defeat of a meaningless tax o financial transactions, the CPMF, that was simply made up for with the increase of the IOF.

With the deal now closed at the lower wage increase, the Estadao is able to report that

… the Caixa Econômica Federal and the National Social and Economic Development Bank (BNDES) will have an additional R$ 130 billion in capital for loans this year . The  Caixa will receive R$ 2.2 in  Petrobrás and Eletrobras, raise to some R$ 30 billion its loan reserve;  BNDES will get an additional R$ 6.4 billion, raising its loan capacity to R$ 100 billion.

With the increase in assets, the Caixa’s Basel Index will rise from 15.4% to 16.0% or so, but should settle at about 15% by year’s end due to a 30% increase in loan volume planned for this year.

A VP of the CEF says … 

Your Morning Mingau | Deloitte Is Semi-Andersoned Over Panamericano

The BCB, Brasília. Out-Death Stars even the sinister FIESP tower on the Av.Paulista.

Here are the headlines at this Sambodian hour.

The Estadao reports that sources inside the Brazilian Central Bank consider Deloitte Touche to have suffered an Enron-scale attention deficit disorder in the case of the Banco Panamericano and the phantom R$4.5 billion it carried on its books for a remarkably long period of time..

Credit Relief for Sambodian Shopaholics?

Dilmanomics

The M&A tip and rumor sheet Relatório Reservado leads with a funny, untranslatable pun on the the topic of the day: the naming of an economic team for the new Brazilian government.

Henrique Meirelles believes that whether he leaves the presidency of Central Bank or not, he will hang around as a sort of consultant on monetary policy to the new Brazilian president. A sort of BCdoB.

The PCdoB is the Communist Party of Brazil — not be confused with the PCB, the extinct Brazilian Communist Party, which eventually morphed into the PPS, a member of the opposition alliance in this year’s elections.

People’s Front of Judea.

Judean Popular Front.

There must be some Monty Python fans out there.

Meirelles, a former top exec at Bank Boston Brasil, Bank Boston, and FleetBoston Global and Wholesale, was an orthodox Brazilian Greenspan whose caution on interest rate policy was politically unpopular with some members of the ruling coalition, who wanted rapid interest rate cuts to stimulate the consumption of credit. e

He and the Treasury minister, Guido Mantega, had an ongoing low-intensity war of words on the subject, but a pledge to honor the independence of the Central Bank was kept.

Meirelles explored, then dropped, a run for governor of Goias for the PMDB last year.

The notion of a central banker — especially a central banker viewed as “beyond politics” — getting into electoral politics unnerved me a little. It may have unnerved the powers that be as well.

The “dirty blog” Brasil Confidencial — singled out for the insult by the opposition candidate this year at a time when the campaign sought to portray itself as the victim of filthy and mendacious Internet culture hacking — names Alexandre Tombini as a likely replacement for Meirelles.

Tombini, according to the daily newsletter, is a career central bank official who enjoys good relations with the World Bank and IMF and is viewed favorably by the financial markets. His appointment might be viewed as a strong promise of continuity, the dirty blog says.

A quick scan of the Google News turns up lots of favorable noises from captains of finance regarding Tombini.

Plan One From Outer Space: The Collor Confiscation and the Rashomon Effect

Ministra Zélia delivers the flabbergasting news, 1990. A TV moment seared in the collective consciousness.

The Rashomon effect is the effect of the subjectivity of perception on recollection, by which observers of an event are able to produce substantially different but equally plausible accounts of it. …. It is named for Kurosawa Akira’s film Rashomon, in which a crime witnessed by four individuals is described in four mutually contradictory ways. The film is based on two short stories by Ryūnosuke Akutagawa, “Rashōmon” (for the setting) and “Yabu no naka” (for the story line).

The Collor Plan: You wake up one day to find that the Federal Reserve has seized your savings, with the promise to return them — duly adjusted for the current raging hyperinflation — in the form of some weird “conversion unit” representing the same sum in a hypothetical future currency, within a reasonable amount of time.

In 1990.

My father-in-law, bless him, did not live to see that promise fulfilled, having passed away late last year.

My mother-in-law was saying at our churrasco (BBQ) last weekend that by the time you withdrew the amount you were allowed to withdraw, it amounted to little more than lunch and a movie. She apparently remembers correctly:

Com a medida, calcula-se que foram congelados cerca de US$ 100 bilhões, equivalente a 30% do PIB. A inflação, que no último mês anterior ao anúncio fora de 81%, caiu para a média de 5% nos meses seguintes. Mas o tiro único desferido na inflação – como prometera o presidente eleito durante a campanha eleitoral – falhou e os preços voltaram a subir logo depois.

With this measure it is calculated that US$100 billion was frozen, or about 30% of GDP. Inflation, which had hit 81% in the previous month, fell to 5% in following months. But this, the only shot fired against inflation in the war promised by Collor during the campaign, failed, and prices soon began to rise again.

Cumulative inflation for 1990: 1,198%

And now for a national feeding frenzy led by Brazilian lawyers as the deadline nears for reclaiming the confiscated savings.

Agencia Brasil reports:

Are Sovereign Swaps A Case for the Cops?

Foreign Exchange-Rate Swap, Basic Schema. Source: FPML.org

In present-day Brazil, indignation has acquired an ideological life of its own, whether it be indignation with the government or indignation over the way the parking lot at the supermarket is run. It hardly matters whether there is genuine reason to be indignant, or whether this indignation is accompanied by any constructive proposals for solving the problem (as it invariably is not.) Indignation has a value all its own, encompassing such an extraordinary ideological mish-mash that even proponents of Carlismo — the epitome of the Brazilian hard right — have adopted what was long the exclusive province of the far left. … Now, everyone is indignant, no matter that the dissonant chorus of the indignant are not all singing from the same ideological score. It is not for nothing, then, that catharsis, as opposed to rational debate, has become the journalistic expression of this new, and at the same time extremely outworn, mode of public discourse. –Luis Nassif, Brazilian Journalism in the 1990s

That characterization seems to apply nicely to a recent debate waged in the pages of the Folha de S. Paulo about the use of exchange-rate derivatives by the Brazilian central bank as part of its monetary policy. See

• Sovereign Swaps Are a Case for the Cops!
• Sovereign Swaps Are Not a Case for the Cops