Boeing and Embraer confirm talks for a potential merger

Wall Street Journal reported that Boeing is in discussions to take over Embraer, the Brazilian airframer. The deal would boost Boeing’s presence in the regional jet market.

For the moment, they confirm only that they are talking but there is no guarantee a transaction will result from these discussions.

 

legacy_executive_jet

An Embraer-Boeing deal will allow them to combine forces after Airbus announced plans to acquire a majority stake in the Bombardier CSeries programme. The Series is already at the center of trade disputes involving both the USA and Brazil with Canada.

Embraer was founded in 1969 by initiative of the Brazilian gouvernement, a military regime at the time. The company was later privatised and its stocks are now traded in São Paulo and New York

Stock Exchanges. In 2000, Embraer began exploring the executive aviation market, introducing the Legacy, built on the same platform of Embraer’s ERJ 135 regional jet.

 

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How young Brazilians hope to clean up politics

https://www.economist.com/news/americas/21732532-first-they-must-get-elected-and-old-guard-make-hard-how-young-brazilians-hope

WITH his reversed baseball cap and facial fuzz, the style of 29-year-old Daniel José Oliveira (pictured) is hardly typical for a Brazilian politician. Nor is his background: he was one of 11 siblings brought up in a small town by a domestic servant and an office porter. After winning a scholarship to a Catholic school, he studied economics at a fine São Paulo campus. That led to a job at J.P. Morgan, a scholarship to study at Yale University and a job offer from another American investment firm.

But in 2015, with Brazil’s economy crashing and its politics mired in scandals, he instead came home. Inspired by En Marche!, the French liberal party which propelled Emmanuel Macron to the presidency, he hopes to be elected next October as a federal deputy for São Paulo state.

Until recently, politics was a turn-off for his generation. The average age of lower-house deputies elected in 2014 was 50, 19 years above the national mean. Brazil’s old-timers are discredited: after more than three years of the Lava Jato (car wash) corruption probe, 40% of congressmen are under investigation. Politicians are unloved. Just one voter in 20 admires them; only 3% approve of President Michel Temer.

Confidence in congress has been sagging for ages. In 2010 Tiririca (Grumpy), a professional clown, was elected to Brazil’s lower house under the slogan “It can’t get any worse.” It did. On December 6th he told his congressional colleagues he would not seek re-election in 2018. “Only eight of the 513 actually show up here,” he moaned. “I am one of those eight and I am a clown.”

Young Brazilians are fed up. “Four years ago someone like me running for congress would have made no sense,” says Mr Oliveira. But renewing Brazil’s congress will not be easy. Independent candidates are banned and parties are unwelcoming to newcomers. In some states seats stay in the hands of well-known families.

Dislodging them may get harder. In 2015, after a series of scandals, Brazil’s supreme court outlawed corporate campaign contributions. In October congress created a “special campaign-finance fund” for next year’s election. But the fund, and airtime, will be allocated in proportion to parties’ current representation. That frustrates newcomers. “Congress is like a cancer,” says Mr Oliveira. “It’s not working in the best interests of the body and it’s defending itself to survive.”

People are trying to find a cure. Mr Oliveira has applied to RenovaBR, a programme to support young Brazilians who want to run for congress. Financed by entrepreneurs, it offers 150 “scholars” courses on Brazil’s institutions plus advice on campaigning and policy. It has thousands of bidders for a half-year programme starting in January. Scholars will get a monthly stipend of 12,000 reais ($3,645).

They will be selected by written tests and interviews. They can belong to any party, but cannot hold extremist views. In return the scholars vow to complete their mandate, justify their voting decisions to their constituents and avoid hiring family as staff members. Eduardo Mufarej, who started the project, hopes to see at least 45 scholars elected.

Other groups are working to make congress more representative. Bancada Ativista (Activist Group) is a left-leaning outfit, formed to fight São Paulo’s city-council election in 2016. Rather than creating a party, it chose eight candidates from two established ones. Only one was a heterosexual white male. “By definition, a black woman is more representative than a white graduate from Harvard,” says Caio Tendolini, a 33-year-old member of the group. It arranged “speed-dating” events for candidates to meet voters and offered social-media training and public-policy contacts. It started working: the candidates drew a total of 75,000 votes and one got in. It will scale up its operation next October.

Agora! (Now!) was founded in 2016 to coax into politics young Brazilians who had shown leadership skills in other fields. Until now it has largely focused on developing policy ideas. “Politicians here think about getting elected first and then worry about their agenda…it should be the other way around,” says Marco Aurélio Marrafon, one of the group’s 150 members. Agora! has working groups on everything from health to homicide. It initially had no plans to run for congress, but “things are getting out of control”, says Ilona Szabó, a co-founder. Next year it plans to field 30 candidates for congress by persuading two parties, Partido Popular Socialista and Rede, to be vehicles. “We want to be a new political force,” says Ms Szabó.

October’s elections are perhaps the most important since democracy was restored in 1985 after 20 years of dictatorship. They are also unpredictable. Fewer Brazilians than ever identify with the old left-right model. Most want to try something new. That can favour extremists: Jair Bolsonaro, a congressman who says harsh things about gays and women, is second in the polls for the presidency. But it could also help moderate newcomers. Four out of five Brazilians say they want “ordinary citizens” to run for congress next year.

Their efforts may fail. New candidates fret about finances and some are already running low. Mr Oliveira used to help his parents out with the bills. Since deciding to run for office he has had to stop. With corporate donations banned, the candidates must rely on individual contributions, and no one knows how generous Brazilians will be. Lack of broadcast time will hurt.

“Next year might not be the tipping point,” warns Mr Oliveira. “But we have to open a trail. If not, there will be no hope of renewal in 2022.” Political renewal may not happen overnight. But Brazil’s Young Turks are making a start.

 

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Is Bolsonaro going to be President?

What do we think of Bolsonaro? Will he be positive or negative for Brazilian stocks, like Petrobras and Vale?

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https://www.economist.com/news/americas/21731190-can-right-wing-demagogue-win-next-years-election-jair-bolsonaro-hopes-be-brazils-donald

A radical from Rio Jair Bolsonaro hopes to be Brazil’s Donald Trump

Can a right-wing demagogue win next year’s election?

 

IN THE arrivals hall of Belém’s airport the excitement is palpable. Hundreds of supporters of Jair Bolsonaro, a seven-term congressman and would-be president, gather under the steady gaze of a squad of policemen. Some hold banners with Mr Bolsonaro’s campaign slogan: “Brazil above everything, God above everyone”. A few wear “Godfather” T-shirts, with his face in place of Marlon Brando’s. When the candidate finally emerges through sliding doors the crowd surges forward, straining for a glimpse. While bodyguards forge through the scrum, the crowd hoists Mr Bolsonaro aloft as if he were a homecoming hero.

The visit to Belém, the sweltering capital of the Amazonian state of Pará, is an early stop in Mr Bolsonaro’s campaign to win the presidential election due in October 2018. A religious nationalist and former army captain, he is anti-gay, pro-gun, and an apologist for dictators who tortured and killed Brazilians between 1964 and 1985. He rails against the political elite, whose venality has been exposed by the three-year Lava Jato (Car Wash) investigation.

His message resonates. If the election were held today, an eighth of Brazilians would vote for Mr Bolsonaro, according to Ibope, a pollster. In a crowded field, that would put him second to the former president, Luiz Inácio Lula da Silva, who has the backing of a third of the electorate. The two would face each other in a run-off.

Polls this early are unreliable and Mr Bolsonaro’s eighth of the electorate is hardly a groundswell. His appeal may well fade as the economy recovers from a recession and voters pay more attention to the election. But his second-place status says much about the turbulent mood among Brazilians. A choice between him and Lula, who has been convicted by a lower court of corruption, would be a grim one indeed. Lula is appealing against the verdict.

Telling it like it isn’t

Mr Bolsonaro, who represents Rio de Janeiro in congress, hopes to be a Brazilian Donald Trump. His rhetoric is even more indecorous. In 2016 Mr Bolsonaro dedicated his vote to impeach Dilma Rousseff, then Brazil’s president, to the dictatorship’s chief torturer, Carlos Alberto Brilhante Ustra. (Ms Rousseff herself, once a member of an urban guerrilla group, had been tortured by the military regime.) In 2014 he told a congresswoman he wouldn’t rape her “because you don’t deserve it”.

Mr Bolsonaro, whose middle name is Messias (Messiah), talks little about what he would do as president, apart from restoring law and order. He admitted in a recent interview with Bloomberg to a “superficial understanding” of economics. He holds some mainstream views, such as favouring gradual reform of the ruinously expensive pension system. Less conventional is his wish to loosen gun-control laws, restrict Chinese investment in Brazil and cosy up to Mr Trump. He opposes gay marriage (legal since 2013) and adoption by gay parents. “His political instincts are to radicalise rather than moderate,” says Paulo Sotero of the Brazil Institute at the Woodrow Wilson Centre in Washington.

Public opinion is becoming more militant, too. The influence of social conservatism appears to be growing. In September Santander, a bank, abruptly closed an exhibition of “queer art” in Porto Alegre in southern Brazil, which included a painting that showed someone having sex with an animal. Campaigners said it promoted blasphemy and bestiality. Around a thousand people joined a “Christian march for Brazil” on October 16th in São Paulo. Some held banners that called for the military to take over the country. Mr Bolsonaro, who was baptised in the Jordan river last year, will attract support from evangelicals. They make up a fifth of the population, according to the census taken in 2010; three decades before, they were one in 15.

Anger about the economy, crime and corruption will add to Mr Bolsonaro’s support. Despite a recent pickup in economic growth, the unemployment rate is still high at 12.4% and poverty is increasing. The murder rate is rising. Michel Temer, the current president, survives in office only because congress has twice rejected appeals by prosecutors to put him on trial for corruption. His approval rating is a risible 3%. Just 13% of Brazilians think democracy works well; a third would back another coup. Nearly 60% want a president from outside one of the three biggest parties.

Mr Bolsonaro has belonged to seven during his 26-year congressional career. He is now a member of the Christian Social Party, which has just 11 of the 513 seats in the lower house. He pays a price: public money for campaigns and time on television and radio are distributed according to parties’ share of seats in congress. But money has become less important since recent reforms capped campaign spending and prohibited corporate donations. Mr Bolsonaro boasts that he will spend just 1m reais ($310,000) on his campaign (in 2014 Ms Rousseff spent 300 times as much).

He is betting on social media. He has 4.8m followers on Facebook, more than any other Brazilian politician, and posts several videos a day, many of which are viewed by more than 1m people. His campaign is well organised. In Belém it deployed women to deal with any female protesters who might show up; sending men to confront them might have produced ugly press coverage.

“Bolsonaro is the only honest candidate we have,” explains Bárbara Lima, a 27-year-old volunteer. “There is no proof that he is racist or homophobic.” Older supporters remember the military dictatorship fondly. “My childhood was one of the happiest times of my life. I had liberty, security and health,” recalls Tom Meneses. “Then the socialists came to power.”

Despite fury and nostalgia, the odds are against Mr Bolsonaro becoming president. A third of Brazilians rule out voting for him in the first round. As the economy improves, fewer may gamble on a radical presidency. The two-round electoral system makes it hard for extremists to win; in a run-off, the moderate majority rallies to the more mainstream contender.

The only candidate with higher rejection rates than Mr Bolsonaro is Lula, but he may be not be able to run if a higher court upholds his conviction. His disqualification would make things still more difficult for the Rio radical. Even so, Mr Bolsonaro’s strong early showing is a warning sign. Centrists must prove that they are better equipped than extremists to repair the damage politicians have done.

This article appeared in the The Americas section of the print edition under the headline “He’s not the Messiah. He’s a very naughty boy”

 

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Brazilian currency boosted by lower inflation in the U.S.

 

While domestic turbulences remain, the Brazilian currency experiences a relief thanks to an external factor. Itau-BBA’s report indicates that emerging market currencies were favoured by lower-than-estimated inflation in the U.S. According to the Brazilian investment bank, the good news about inflation should delay the U.S. Federal Reserve’s decision to hike the benchmark interest rate before year-end.

In Brazil, inflows’ outlook is also on a positive trend.  The exchange rate closed the week at 3.15 reais per dollar, appreciating 0.3% and performing in line with its peers. Brazilian Central Bank’s stock of FX swaps is currently $24 billion.The currency flow maintains the positive trend. Although foreign flows to the stock market are negative by $807 million during the month.

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Enemies wanted : The Brazilian army is turning into a de facto police force Its plodding infantry are ill-suited to repel threats to natural resources

https://www.economist.com/news/americas/21724839-its-plodding-infantry-are-ill-suited-repel-threats-natural-resources-brazilian-army

FEW places illustrate the modern role of the Brazilian army better than Tabatinga, a city of 62,000 on the shared border point between Brazil, Colombia and Peru. The frontier, protected by Amazon rainforest, has not budged since the Portuguese built a now-ruined fort there in the 1700s. But Júlio Nagy, a local commander, has his sights trained on unconventional threats. In February and March his troops intercepted 3.7 tonnes of cannabis. Last year they destroyed an airstrip built by illegal gold miners. Inside a small army-run zoo—home to toucans, a jaguar and even a manatee—garish macaws rescued from animal traffickers squawk intermittently.

The last time a big Brazilian city was attacked was in 1711, when a French corsair briefly captured Rio de Janeiro. The country’s official defence review states that “at present, Brazil has no enemies”. Lacking bellicose neighbours, armed insurgencies or much appetite to project power abroad, the defence minister, Raul Jungmann, recognises that the country’s armed forces “do not possess classic military attributes”.

Brazilian strategists say that a dearth of military adversaries does not justify skimping on defence. Criminal gangs operating in border areas can overwhelm civilian police, and in the future Brazil hopes to deter foreigners covetous of its natural resources. Maintaining control over sprawling, varied terrain is not cheap. Nonetheless, new threats require new responses. And the army’s own top brass say that its current form—heavy on low-skilled personnel, light on equipment, and increasingly diverted towards routine policing—is ill-suited for the government’s stated aims.

Brazil’s army burgeoned during the cold war. In 1964 its generals staged a coup; during their first year in power defence spending rose by 75%. The military budget surged again after the junta fell in 1985, as the new leaders sought to forge a modern army under civilian rule. Since 1989 defence spending has fallen from 2.5% of GDP to 1.3%, roughly the regional average. Nonetheless, the army has retained enough influence to resist nominal budget cuts.

With 334,000 troops at its disposal, the government has had to find ways to deploy them. Brazil leads the UN’s stabilisation mission in Haiti, to which it chips in 1,277 peacekeepers. But its peacekeeping contribution ranks just ahead of neighbouring Uruguay’s, whose population is smaller than that of nine different Brazilian cities. For the bulk of its forces, Brazil has instead adopted what Alfredo Valladão of Sciences Po, a university in Paris, calls a “constabulary mentality”—plugging the gaps left by domestic security bodies.

Many of these operations fall within the army’s mission. Federal law grants it policing powers within 150km (93 miles) of Brazil’s land border. International gangs have long been drawn to the frontier: Pablo Escobar, a Colombian drug lord, is said to have owned a cargo plane that now sits outside Tabatinga’s zoo. The army is also responsible for “law-and-order operations”. Troops are a common sight during events like elections or the 2016 Olympics.

However, the army’s remit has expanded to mundane police work. Decades of overspending and a long recession have drained the coffers of most Brazilian states. Although just 20% of their requests for soldiers for emergency assistance are approved, they still make up a growing share of the army’s workload. During the past year, soldiers have spent nearly 100 days patrolling city streets—double the number from the previous nine years combined.

Most Brazilians seem unfazed by this trend. Unlike politicians and police officers, servicemen are seen as honest, competent and kind. Despite the shadow of the dictatorship, confidence rankings of institutions often put the army at the top.

Soldiers are trying to adapt to their new role. At a training centre in Campinas, near São Paulo, they are subjected to tear-gas and stun grenades, so they know what such weapons feel like before unleashing them on civilians. Residents of Rio’s shantytowns bemoan the end of the army’s 15-month mission to evict gangs. Once they left, the police resumed their trigger-happy ways. Soon the gangsters were back, too.

Nonetheless, blurring the lines between national defence and law enforcement is perilous. Soldiers make costly cops: a day’s deployment of a few thousand can cost 1m reais ($300,000) on top of their normal wages. More important, over-reliance on the army is unhealthy for a democracy. Troops are trained for emergencies, not to maintain order day to day. And transforming a last-resort show of force into a routine presence risks undermining public confidence in civilian authorities.

The army itself aspires to a much different role. A draft of the next official defence review is short on specific “threats”—the term appears just one-tenth as often as it does in a similar British analysis from 2015—but long on desirable “capabilities”. Principally, it posits, Brazil must protect its natural riches. That risk might sound remote. But if pessimistic forecasts of climate change materialise, lush Brazil might look enticing to desperate foreign powers.

Refocusing the army on this priority is a daunting prospect. First, Brazil will need to strengthen its policing capacity. Mr Jungmann has called for a permanent national guard, starting with 7,000 men, to relieve the load on the army. Michel Temer, the centre-right president, backs this idea.

Beyond that, Brazil’s armed forces of yesteryear are a poor fit to combat the threats of tomorrow. To fend off intruders in the vast rainforest or the “Blue Amazon”, as the country’s oil-rich territorial waters are known, Brazil will need a flexible rapid-reaction force, able to intervene anywhere at a moment’s notice.

That requires modern equipment and small teams of mobile, skilled personnel. Yet two-thirds of ground forces work on contracts that limit them to eight years’ service, preventing their professionalisation. Three-quarters of the defence budget goes to payroll and pensions, leaving just a sliver for kit and maintenance. In the United States, the ratio is the reverse.

Before the recession took root, Brazil was moving towards these ends. In 2015 it agreed to buy 36 Swedish Gripen fighter jets for $4.7bn. But spending on military equipment has fallen by two-thirds since 2012, leaving a roster of half-baked projects. An effort with Ukraine to build a satellite launch vehicle was scrapped in 2015. A space-based monitoring system intended to detect incursions covers just 4% of the border. A 32bn-real nuclear-powered submarine is nowhere near completion. And the country’s only aircraft carrier, never battle-ready, was mothballed in February.

In an age of austerity, even routine operations are coming under strain. Because the air force only provides one supply flight per month to a border garrison in Roraima, a northern state, Gustavo Dutra, its commander, has to charter private aircraft at 2,000 reais per hour. And in January the army was called in to quell prison riots in the state, whose precarious finances have stretched its security budget. General Dutra frets his men may be summoned there again before long.

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Confidence going up in Brazil

Bradesco published this week that confidence about the economy in Brazil is up. Inflation is taking a downward turn which leads to forecasts for low interest rates in the long run. 

Besides, the Bank analysis says that:” Higher GDP and stronger FX are also expected, confirming the Brazilian economy’s favorable conditions and calmer political news flow.”

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Growing Violence in Rio Favelas

There is increasing violence in favelas in Rio. I have been watching these local newspaper reports:

http://www.jb.com.br/rio/noticias/2017/09/22/militares-do-exercito-e-aeronautica-comecam-cerco-a-comunidade-da-rocinha/

http://www.msn.com/pt-br/noticias/brasil/delegado-pede-que-traficantes-encurralados-na-rocinha-se-entreguem/ar-AAsn0l6?li=AAggXC1

https://oglobo.globo.com/rio/forcas-federais-nao-tem-previsao-para-sair-da-rocinha-21860059

Wagner Moura (through his character) in Elite Squad noted that the Brazilians use the same techniques as the Americans in Iraq for pacification. Through my own military training, I know the Brazilians use the same model as the Americans did in Iraq, based on techniques the Los Angeles Police consulted on. Wagner . 2014-16 may have been like the surge (Iraq 2006-07, see my blog/ book, http://www.lima37.com) for the olympics and world cup, and now it’s going to be like the years after the Americans left when all the security gains fell apart, ISIS came back; which may be good for certain businesses, including defense.

It would be interesting to see what Brazilians think of this situation.

Boa Sorte, Rio!

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