Fiat cracks Brazil, but rivals follow
By John Reed
Published: May 25 2010 03:00 | Last updated: May 25 2010 03:00
Fiat's car plant near Belo Horizonte in Brazil's Minas Gerais province is not just the Italian carmaker's largest, but one of the busiest in the world.
The facility consumes 750 tonnes of steel daily, works around the clock on three shifts, and produces a car every 20 seconds, or more than 3,000 a day.
Fiat recently opened an eighth factory gate at the plant to ease the flow of supplies trucked in for the 12 models it makes there, which include the Uno and Punto small cars and the Strada, a small pick-up truck developed in Brazil.
The plant produced 722,400 cars last year, second only to Volkswagen's behemoth factory in its hometown of Wolfsburg, Germany, which made 740,000 vehicles in 2009.
Fiat, which loses money on its core carmaking business in Europe, reported a hefty net profit of R1.6bn ($863m) last year in Brazil, where it controls a quarter of the market for light cars and commercial vehicles. Last year Fiat sold more cars in Brazil than Italy.
Sergio Marchionne, group chief executive, reflecting on the Brazilian unit's copious earnings in Turin last month, joked that "it makes you wonder what we're doing in Europe".
As the global car industry seeks to right itself after a deep crisis, other automakers are mining some of their richest profits in South America's largest market. Almost all are expanding their operations.
While China's booming market remains the biggest competitive battleground for global carmakers, Brazil offers better margins, as they are not obliged to build cars in joint ventures and share the profits with their partners.
VW, the market's second-biggest producer, is investing €2.3bn ($2.8bn) in the country to 2014.
General Motors, the market's third-biggest producer, does not report profits, but according to one company official has been "printing money" in Brazil.
Ford Motor, the smallest of the country's "big four" producers who claim nearly 80 per cent of the market, made $765m in South America last year - the bulk of it in Brazil. The US carmaker says it will invest R4.5bn in 2011-15 in Brazil, where it plans to develop a small sport utility vehicle.
Brazil's automotive market grew by 11 per cent last year, helped by tax incentives but fuelled largely by the momentum of a resource-rich economy with expanding credit and a rapidly growing middle class. Carmakers predict that the car market will grow in the high single digits again this year, and continue expanding in the next few years.
"Brazil has about 6.5 inhabitants per vehicle; in the US it's 1 or 1.2," says Rogelio Golfarb, institutional director of Ford's Brazilian operation. "The potential for growth in Brazil over the next five to 10 years will be huge."
Brazil's big four carmakers - followed by France's PSA Peugeot Citroën and Renault, who also produce locally - have until now enjoyed the benefits of a market protected by a 35 per cent import tariff on cars.
However, producers and analysts say that the European and US carmakers will face growing competition in years to come that could see their fat margins squeezed.
Car imports are already growing as the Brazilian real strengthens, and Asian competitors are beginning to erode the incumbents' commanding market share. South Korea's Hyundai and China's Chery Automobile have both announced plans to build plants in Brazil.
"We're going to see a wave of newcomers coming to Brazil, mainly the Chinese and the Koreans," says Marcelo Cioffi, PwC's auto industry leader for Brazil. "This may force prices down . . . but volumes will be good going forward."
While Brazil's market was and remains dominated by small, no-frills "popular" cars, consumers and legislators are starting to demand more safety and other features, entailing costs carmakers acknowledge they will only partly recoup. This will put further pressure on their margins.
Fiat says that it is prepared for the challenge. Its plant in Betim, opened in 1976, has long enjoyed a labour cost advantage relative to the São Paulo region farther south where most of Brazil's car plants cluster.
"We have been suffering a lot with import competition in Brazil since the real has been in its strong phase," says Cledorvino Belini, chief executive of Fiat's Brazilian operation. "But we've been around here for 35 years, we know the market, and we know how to hold our ground."
For the latest emerging markets news go to: www.ft.com/beyondbrics
Brazil looks to pass Germany in global league of vehicle sales
By John Reed in São Paulo
Published: May 25 2010 03:00 | Last updated: May 25 2010 03:00
Brazil is on track to overtake Germany as the world's fourth-largest vehicle market this year as demand for cars in the Latin American country continues to surge past developed nations, automakers and analysts say.
The country's resource-fuelled economic expansion has spurred strong growth in car buying during the past year that has outlasted the expiration of tax incentives which were introduced after the financial crisis in late 2008 and lapsed in March.
Brazil was the world's fifth-largest vehicle market last year, after China, the US, Japan and Germany, with 3.1m cars and light trucks sold.
Volkswagen, the country's second-biggest automaker after Italy's Fiat, expects the market to grow by 7 per cent this year, and says it could surpass Germany on total vehicle sales.
"This year depends on how the market in Europe goes," Thomas Schmall, president of VW do Brasil, told the Financial Times. "It might be the same, but Brazil might overtake Germany."
General Motors, the Brazilian market's third-largest automaker, is forecasting total industry sales of about 3.3m vehicles this year, a 5 per cent increase on a year ago.
"We believe 5 per cent annual growth is sustainable for Brazil over the next five years, with some upside given by the world soccer cup in 2014 and Olympic Games in 2016," said Jaime Ardile, head of GM's Brazilian operation. "This could make Brazil the fourth-largest auto industry in the world after China, the US and Japan."
The rise of Brazil up the automotive league table reflects the migration of production capacity and investment from saturated developed countries to faster-growing emerging ones.
PwC, the consultancy, expects Germany's light vehicle market to decline by about 20 per cent this year to 3.18m from just under 4m last year, and for Brazil's to grow by about 8 per cent to 3.3m.
"If you take the light vehicle market, we expect Brazil to overtake Germany this year," said Michael Gartside, senior analyst with PwC Autofacts. But on car sales alone - excluding light commercial vehicles - Germany would still be a larger market than Brazil, he said.
IMF chief says US consumer is currently the engine of worldwide growth
By Michael Hennigan, Founder and editor of Finfacts
May 26, 2010 - 4:22:44 AM
IMF Managing Director Dominique Strauss-Kahn said on Tuesday that the US consumer is currently the engine of worldwide growth.
The American economy has picked up recently, with consumer spending jumping higher and debt falling sharply. The Conference Board's consumer sentiment index as reported on Tuesday, rose to 63.3 in May from 57.7 the month before. This is the third consecutive month of increase and the highest since March 2008. Adding to the optimistic outlook, US consumers think the outlook is brighter. The expectations component of the index jumped to 85.3 from 77.4 -- the highest level since August 2007 before the start of the US recession in December of that year.
The loss of wealth in home and stock values was a significant factor holding back consumer spending during the recession. That wealth is beginning to recover but a major slide in the stock market would reverse those gains and cause consumers to become more cautious again.
Standard & Poor's economists expect consumers to be more cautious than they were before the recession, but the saving rate now seems more likely to settle near its March level of 2.7% rather than the 5% it hit late last year and a dip below zero in 2005.
Up until now, consumers have been spending money while still cutting down on debt. In March, consumer installment debt (basically, everything except real-estate-secured debt), rose $2.0bn, only its second increase in 13 months.
However, relying on the US consumer is a precarious scenario.
Stephen Roach, the veteran Morgan Stanley economist and currently chairman of the Asia region, said that starting in the late 1990s, the US economy went through an ominous transformation. Income-short consumers discovered the miracle drug of a new source of purchasing power - - the seemingly open-ended wealth creation of ever-frothy asset markets. First equities, then residential property, American households drew on asset appreciation to consume well beyond their means. He said real private sector compensation - - the broadest measure of the economy's endogenous income flows - - currently stood at only about 13% above its early 2002 levels in inflation-adjusted terms. Yet personal consumption surged to a record 72% of real GDP in early 2007 -- a spending binge without precedent in US history, or for that matter in the long history of any leading economy in the modern era.
Wealth creation closed the gap - - driven especially in recent years by the self-reinforcing feedbacks between housing and credit bubbles. Courtesy of new "breakthroughs" in mortgage finance - - breakthroughs, in retrospect, that were more destructive than constructive - - homeowners tapped the seemingly open-ended home equity till as never before. Net equity extraction from residential property surged from about 3% of disposable personal income in 2000 to nearly 9% in 2006. This provided newfound support to spending and saving that allowed households to more than compensate for the extraordinary shortfall of labour income generation. The result was not only the consumption binge, but also a profound shortfall of income-based saving. The personal saving rate slid into negative territory in late 2005 for the first time since the 1930s.
Lacking in income-based saving, the US imported surplus saving from abroad in order to keep growing. But it had to run massive external deficits in order to attract the capital - - sufficient to push the current-account deficit up to a record 6.5% of US GDP by the third quarter of 2006. Roach said the impact of that development was global in scope - - deficits must always be matched by surpluses elsewhere in the world. Courtesy of America's gaping external shortfall, global imbalances - - the absolute sum of the world's current account deficits and surpluses — soared to 6% of world GDP in 2006, nearly triple the 2% reading of a decade earlier. Joined at the hip, asset bubbles and global imbalances stretched the macro fabric of the global economy as never before.
In his book on Asia, Dr. Roach says that almost 80% of China's GDP goes to exports (30%) and fixed investment (50%). Since the early 1990s its per-capita income has increased fivefold; America accounts for about 5.0% of the world's population and about $10 trillion of consumer spending in 2008; China and India together account for 37% of population and only $2.5 trillion on spending.
The world avoided a great economic depression and will recover thanks to close cooperation from the international community, said IMF chief Dominique Strauss-Kahn in São Paulo, Brazil on Tuesday.
Referring to a critical lesson from the recent crisis, he said success came from the approach championed by world leaders of the G-20 group of advanced and emerging economies and the IMF at the height of the crisis.
"National oriented responses are not the way, since they risk creating economic conflicts," said Strauss-Kahn, adding that financial regulation in particular should be coordinated internationally.
Strauss-Kahn made the remarks at the start of his week long trip to Brazil and Peru, where he will meet with business leaders, officials and students to discuss the challenges facing the global economy and how the IMF can harness global cooperation in the recovery.
Speaking in São Paulo, Brazil's financial capital, in a televised debate on GloboNews, the IMF Managing Director described Brazil as a "success story."
New sources of growth
In remarks and in a question and answer period session in front of an audience of 200 people, including academics, the private sector and the press, Strauss-Kahn tackled the question of new sources of growth in the global economy.
"We have seen China adopt a massive stimulus package geared towards reactivating internal demand, and moving away from its export model, and US consumers have started saving more, which also shows some change," said Strauss-Kahn. "One must not forget however that the US consumer is currently the engine of worldwide growth so you can't find a solution to the problem overnight. It is a lengthy process that will only take place gradually."
Addressing the need to support the recovery and create sustainable growth in the long run, Strauss-Kahn said there is a "need for fiscal consolidation globally, but there is no future in fiscal consolidation without growth."
Emerging economies stronger role
Strauss-Kahn said the strength of the IMF lies in "truth telling," and the IMF's role in the surveillance of the global economy includes overseeing the implementation of rules that govern financial regulation. He said one of the tools at the IMF's disposal is the Financial Sector Assessment Program, which examines and identifies the strengths and vulnerabilities of a country's financial system.
As a regional economic powerhouse, the Brazilian audience was interested in Strauss-Kahn's views about the role of emerging economies in the global economy and the governance of the IMF.
"Emerging economies participate actively in the decision making at the Fund and their voice is much more powerful than in the past," the IMF chief said. "I think we can no longer say that the IMF is an institution at the hands of the United States or Europe. However, this greater influence and greater power must be translated formally in the Fund workings."
Strauss-Kahn also addressed the vestiges of the IMF's past in Latin America, and said there is no one-size-fits-all solution for countries' economic problems. He said the global lender is called into action when a country needs help, the way a doctor treats a patient with an illness.
The IMF chief continues his visit to Brazil with a meeting in Brasilia with President Luiz Inácio Lula da Silva, and with Finance Minister Guido Mantega.
UPDATE: IMF's Strauss-Kahn: Sees No Threat To Euro Currency
MAY 25, 2010, 1:05 P.M. ET
SAO PAULO (Dow Jones)--The current fiscal crisis in the European Union is not a threat to the economic bloc's common currency, the managing director of the International Monetary Fund said Tuesday.
Speaking at an event in Sao Paulo, Dominique Strauss-Kahn said, "There is no threat to the euro system. I am confident in the ability of the Greek government and the Greek people to meet austerity goals."
Global financial markets have been under siege since April, when the fiscal crisis in debt-laden Greece deepened and sparked concerns about similar issues in Spain and Portugal. The euro currency has plummeted in value against the U.S. dollar because of a lack of confidence in the fiscal policies of many EU member countries.
The EU and IMF arranged a nearly EUR750 billion package to ease debt troubles in the economic bloc and restore investor confidence.
Strauss-Kahn downplayed turmoil in Spanish financial markets this week following the seizure of assets in Spanish savings bank CajaSur by Spain's central bank. Strauss-Kahn said the seizure was part of a necessary financial system restructuring in Spain, but he noted that CajaSur was a comparatively small institution. "I don't see this as a major problem," he said.
Regarding global financial market volatility, Strauss-Kahn said, "I think the short-term stress is being reduced."
The IMF managing director also expressed confidence that the volatility will continue to ease throughout 2010.
Regarding Brazil, the IMF managing director said the challenge for policy makers "is not how to promote growth but how to manage it." Brazil's economy is expected to grow by about 6% this year, but consumer-led growth could spark inflation of 5% or more.
Strauss-Kahn said that "the Brazilian government's economic policy decisions to date have all been correct. We would like to see all the countries in the world managing their economies as Brazil does."
He said he expects the Brazilian economy to cool somewhat by the end of 2010, "setting the stage for sustained expansion in the coming years."
Brazil Real Closes Sharply Weaker On EU Banks, Korea Tensions
MAY 25, 2010, 3:51 P.M. ET
RIO DE JANEIRO (Dow Jones)--The Brazilian real closed sharply weaker against the U.S. dollar Tuesday in a volatile session as European banking woes and tensions between the two Koreas sent skittish investors scurrying for safety.
The real ended at BRL1.8907 to the dollar on Brazil's BM&FBovespa exchange, weaker from Monday's close at BRL1.8660. So far in May, the real has lost nearly 9% against the U.S. currency.
Overseas anxiety was once again the driving force behind the real's slide, with the currency breaking the BRL1.90-to-the-dollar barrier at the open--its weakest intraday level since Sept. 2, 2009, traders said.
The euro continued its recent downward trend due to concerns about the health of the European Union's banking system. Spain's central bank was forced to seize assets of savings bank CajaSur, while four other regional banks agreed to merge in an effort to shore up their balance sheets.
The moves spooked already nervous investors, who have been wary of the economic bloc since fiscal troubles first surfaced in Greece.
Global financial markets have been under siege since April, when the fiscal crisis in debt-laden Greece deepened and sparked concerns about similar issues in Spain and Portugal. The euro has plummeted in value against the U.S. dollar because of a lack of confidence in the fiscal policies of many EU member countries.
The EU and International Monetary Fund arranged a nearly EUR750 billion package to ease debt troubles in the economic bloc and restore investor confidence.
IMF Managing Director Dominique Strauss-Kahn downplayed the banking troubles in Spain, adding that market volatility should ease going forward.
"I think the short-term stress is being reduced," Strauss-Kahn said during an event in Sao Paulo.
Also adding to the gloomy market scenario Tuesday was a renewal in tensions on the Korean Peninsula. Starting overnight in Asia, stock exchanges around the world slid sharply after a group said that North Korean President Kim Jong-Il had ordered the military ready for combat.
Brazil's economic outlook continues to look strong, but the country remains at the mercy of international market moves, traders said. Not even expectations for higher interest rates--and the returns they can generate--have been able to overcome the recent volatility.
Higher interest rates in Brazil typically attract heavy foreign inflows from investors seeking better rates of return. Brazil has been a favored destination for carry-trade players, who borrow cheap cash overseas and invest in Brazil.
Rising inflation and a bevy of strong economic data in recent weeks have raised bets that the Brazilian Central Bank will likely raise interest rates at its June 9 meeting--depending on the resolution of European troubles.
In April, the bank raised the benchmark Selic base interest rate by 75 basis points to 9.5%--the first rate increase in nearly two years.
The central bank also continued to hold its daily spot-market auction, buying an undisclosed volume of dollars for BRL1.8718 to the dollar.
The central bank has intervened in currency markets on a daily basis since May 2009 in an effort to prop up the dollar and limit heavy foreign-investment inflows.
Local interest-rate futures contracts, meanwhile, reflected the possibility that the financial crisis in Europe could slow the anticipated rise in local interest rates.
The most actively traded contract, January 2011, slipped to 10.86% after closing Monday at 10.91%. The contracts reflect investor expectations for average annual interest rates at future dates.
Brazil's overnight interbank lending rate, known as the CDI, was even with Monday's close at 9.38%.
Strauss-Kahn Says Brazil Challenge Is Fast Growth (Update1)
May 25, 2010, 3:52 PM EDT
By Maria Luiza Rabello
May 25 (Bloomberg) -- Brazil's economy can grow as much as 7 percent this year, raising the risk of overheating, said International Monetary Fund Managing Director Dominique Strauss- Kahn.
"For this year, 7 percent would definitely be a reality," Strauss-Kahn told reporters today in Sao Paulo, the first stop on a tour of Latin America that will also include stops in Brasilia and Lima, Peru.
Strauss-Kahn said Brazilian officials are aware of the risk of Latin America's biggest economy "overheating."
"The expectation this year is that growth will be very high," he said at a televised debate earlier. "The question is how to manage this very high level of growth so as not to create too much inflation and too high a current account deficit."
Consumer prices in Brazil will rise 5.67 percent in 2010, up from a week-earlier forecast of 5.54 percent, according the median forecast in a May 21 central bank survey of about 100 economists published May 24. Brazil's economy will expand 6.46 percent in 2010, compared with a week earlier forecast of 6.3 percent, the survey shows.
The IMF, in a report this month on Latin America's growth outlook, forecast Brazil's gross domestic product will expand 5.5 percent this year. Paraguay and Peru are the only two regional economies the IMF expects to experience faster growth.
Strong capital inflows amid uncertainty in other parts of the global economy could cause Brazil's real to strengthen against other currencies, Strauss-Kahn said.
The IMF official said that the economic recovery is "well-established" in many parts of the world though it faces obstacles in some nations with high levels of debt, raising the risk of a sovereign default. He did not say which countries he was referring to.
The IMF chief said that part of the solution to Greece's financial crisis lies in the nation's restoring its competitiveness.
"You have an immediate fiscal problem, but you have a more important question about growth in the coming years," he said.
--Editors: Harry Maurer, Joshua Goodman
Brazil economy to grow 7 pct in 2010-IMF chief
Reuters - Wednesday, May 26
SAO PAULO, May 25 - Brazil's economy will expand briskly this year, said Dominique Strauss-Kahn, managing director of the International Monetary Fund, at a Sao Paulo event on Tuesday.
"For this year the 7 percent will certainly be a reality," he said to journalists.
(Reporting by Ana Nicolaci da Costa, writing by Luciana Lopez)
WRAPUP 1-Brazil to grow, Europe may hurt global recovery-IMF
SAO PAULO, May 25 (Reuters) - Brazil's economy could surge this year, a stark contrast to the risks the euro zone debt crisis pose to the global economy, the International Monetary Fund's managing director said on Tuesday.
Dominique Strauss-Kahn told reporters "the 7 percent (growth) will certainly be a reality" for Brazil in 2010.
With that much expansion in Latin America's largest economy, he said there was a "risk of overheating and I think the government is perfectly aware of this and is taking action."
"Our forecast for 2011 is that the economy will go back to something like 4.5 or 5 percent (growth)," Strauss-Kahn said.
In contrast, the euro zone sovereign debt crisis is the biggest threat to the global economic recovery, he said at a separate event in Sao Paulo.
Economists in a weekly central bank survey saw roaring growth of 6.46 percent for Brazil this year, even as European countries like Greece, Spain and Portugal struggle with weighty debt loads that have prompted fears of sovereign defaults.
Strauss-Kahn said those fiscal problems must be addressed as European countries seek to expand their economies and that the remaining work on overhauling financial regulation must be consistent to avoid derailing the global economy further.
Investors have been unconvinced by a $1 trillion lifeline announced by the European Union and the IMF to reinforce the euro and contain fiscal problems, with riskier assets such as stocks tumbling around the world.
Brazil's benchmark Bovespa stock index .BVSP fell more than 3 percent in intraday trade on Tuesday as investors ran to safe havens such as the U.S. dollar. The index pared some of those losses to close down 1.22 percent. (Reporting by Ana Nicolaci da Costa; Writing by Luciana Lopez; Editing by John O'Callaghan)
'No threat to the euro system': IMF chief
By Marc Burleigh (AFP) – 19 hours ago
SAO PAULO — IMF chief Dominique Strauss-Kahn Tuesday dismissed fears the strains on the euro would lead to the collapse of the eurozone despite a sharp fall in stocks and a race to the safe-haven dollar.
"I think there's no threat to the euro system," Strauss-Khan told reporters in Brazil when asked whether the eurozone risked a domino effect from Greece putting the euro in peril.
"It's difficult for the Greeks to do what they have to do, but they have already taken bold decisions and from this point of view, everybody I think is commending the Greek government."
But he acknowledged financial markets had been shaken "because of the Greek program, because of the lack of confidence in the situation in the euro zone and so on."
The International Monetary Fund president was speaking as stock markets around the globe extended heavy losses on fears the European debt crisis could cause a double-dip recession.
Uncertainty was sharpened by dangerous tensions between North and South Korea.
The European crisis has stemmed from Greece's heavily indebted economy, and from turmoil in the Spanish banking sector suggesting the euro's woes could spread to other weak eurozone members.
Investors were fleeing the euro for the relative safety of the dollar.
Strauss-Khan added he did not underestimate the fiscal burden now being put on "the shoulders of the Greeks" as their government tries to right its economy on the basis of a plan drawn up by EU states and the IMF.
"I think that this plan will work. The problem of course is the question of implementation now," Strauss-Kahn told reporters.
During a debate, organized by the Brazilian television network Globo News, the IMF chief said the world generally was seeing a recovery, even if Europe and the United States were still suffering the effects of the 2008-2009 financial crisis.
"Almost all countries in Asia are out of the crisis," and several South American nations -- notably Brazil, Chile and Peru -- were also doing "very, very well," he said.
However, "it's not totally established that the US is out of the crisis," he said.
He added Europe was emerging as "the weak link in the system," and called the situation in the European region "bizarre."
In an apparent reference to Greece and its parlous finances, Strauss-Kahn warned "sovereign default may hit the recovery."
China had taken on the role of global economic locomotive, but Beijing's policy shift to encourage more domestic consumption after a long period of concentrating on exports had to have an impact on the Chinese yuan, the IMF chief said.
"You have the need of a revaluation of the currency," he said.
US Plays Down European Crisis but China Worried
The United States suggested Europe's debt crisis would have minimal impact on global growth, but China took a more pessimistic view, warning it would impact demand for its exports and other regions would suffer too.
The two countries, meeting in Beijing for high-level talks, set the differing tones as euro zone leaders sought to conquer doubts that they can cut fiscal deficits and stimulate growth to overcome the crisis.
Global markets have been gripped by fears that a debt crisis engulfing Greece will spread to other highly indebted nations, particularly in southern Europe, dragging down the continent's economy and hitting trade with the United States and Asia.
"The euro zone problems haven't been cleaned up yet," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. "And even though the global economy is definitely showing more signs of recovery than it did 6 months ago, worry continues that the euro zone's woes will put a brake on this growth."
Greece's prime minister on Sunday ruled out defaulting on payments or restructuring its debt and his Spanish counterpart vowed to push through an austerity plan despite union threats to strike.
In Beijing, where officials from the world's No.1 and No.3 economies were meeting for U.S.-China Strategic and Economic Dialogue, there were contrasting messages about the dangers Europe's woes posed to the global recovery.
U.S. Treasury Secretary Timothy Geithner, who flies to Europe on Tuesday for talks in Britain and Germany on stabilizing the continent's economy and financial markets, said on Monday the global economy had been strengthening faster than expected.
At the weekend, a senior U.S. Treasury official, who declined to be identified, had said the European crisis would have minimal impact on the world economy.
China's state planning commission seemed less optimistic, saying on Monday that the crisis would affect demand of Chinese goods.
On Sunday, Finance Minister Xie Xuren had warned that Europe's debt woes could hit other regions.
"At present, risks from European sovereign debt have increased factors of instability in the course of global economic recovery," Xie wrote an essay published in the Washington Post and on his Ministry's website (www.mof.gov.cn).
Some analysts suggest China may delay letting its yuan currency rise in value — as Washington has urged — out of concern that its exports to Europe will suffer.
"China is unlikely to de-peg the yuan anytime soon," Standard Chartered Bank said in a note to clients.
Citing, among other factors, the need to see some stabilization in global markets and a sustained trade surplus, the bank said Beijing is likely to wait until the third quarter to unleash the yuan. It had previously predicted May.
Political Will
Japan's government also raised concerns, saying in its monthly economic report that attention should be paid to the potential risks of a slowdown in overseas economies, particularly in Europe.
European leaders have sought to deal with a crisis that has pushed many euro zone member states' borrowing costs sky high through a 110 billion euro bailout of Greece and the setting up of a $1 trillion safety net to stabilize the single currency.
But after riots on the streets of Athens and with strikes looming elsewhere, investors remain concerned about whether Europe has the political will to rein in bulging government deficits and tackle sluggish growth.
"Europe is trying to solve a debt problem with further debt," said Domenico Lombardi, president of the Oxford Institute for Economic Policy.
Greek Prime Minister George Papandreou said in an interview published on Sunday in a Spanish newspaper that EU governments had been slow to act in order to prevent the Greek crisis spreading to other members of the 16-country euro zone.
"The EU took time to realize that speculators' attacks on Greece were just a step before attacking other countries and even threatening the stability of the euro zone," he said. But he insisted Greece was not sliding towards insolvency. "We have no need for defaulting on payments or restructuring," Papandreou told El Pais. "We have opted not to do so. We have opted to pay back the loans we have requested."
Spain's Prime Minister Jose Luis Rodiguez Zapatero is also under pressure to make spending cuts and implement long-awaited labor reforms to avoid a Greek-style loss of confidence. The country's largest union has said it may call a general strike, but Zapatero insisted on Sunday he would not revise a 15 billion euro austerity plan.
"I know there are protests by those who do not share them (government views), like the unions, but we will not change," Zapatero told his Socialist party in Elche, southeast Spain. "No one can doubt at any time that Spain is a strong country and an economic power that will meet its obligations and pay debts."
The euro was under pressure again on Monday, after posting its first weekly gain against the dollar in six weeks last week as investors bought back the currency following its long slide. The euro fell close to 20 percent against the dollar between a high in November and last week's 4-year low of $1.2143. Since then it has rebounded almost 3 percent to $1.2504 on Monday.
Adding to worries about government debt were concerns about the health of Spain's banking system, after the central bank said on Saturday it had taken over the running of savings bank CajaSur after a planned merger with another small lender failed.
The country's largely unlisted savings banks — accounting for about half of the financial system — are most exposed to struggling property developers and have seen their capital eroded by soaring bad loans.
Double Dip Recession Now Assured?
Published: Monday, 24 May 2010 | 5:44 AM ET
With investors facing yet another summer of discontent, one economist has looked back in time for clues on how the following months may place out. With one major banking crisis behind us, Monument Securities Chief Economist Stephen Lewis said investors only need to go back to 2007, rather than the Great Depression, for clues on how the current problems may play out.
"Sharp changes in credit market conditions can have a much more profound impact on business activity than most economic forecasters are prepared to recognize" Lewis said. He warned that people missed the scale of the problem in 2007 and could do so again. "It is tempting to dismiss distress in those markets that are far removed from the productive sectors of the economy as having little bearing on prospects for GDP growth," he said " We ourselves were, to a large degree, guilty of assuming that in 2007." .
With globalization bringing so many markets closer together, Lewis suggested that links between one part of the system and another are not always obvious. "It is sometimes difficult to trace, accurately and comprehensively, the transmission channels between a specific segment of the credit market and the wider economy," he said. "Then again, threats emanating from the credit markets may lie dormant for months, it seems, before their full severity becomes apparent."
What Next?
Investors should be prepared for mid-June to August to be very volatile, as governments across the world attempt to raise money in a crowded market, one leading investor told CNBC.com. Problems in the euro-zone debt market could spread to the US and begin to impact states such as California and New York, this investor predicted. With so much debt needing to be refinanced, US rates would have to rise to attract enough foreign buyers of Treasurys, which could then push the economy back into the dreaded double-dip recession.
And investors may now be failing to take into account the impact of the current credit crisis on growth predictions, Lewis said. "The lag between financial turbulence and economic damage may be fairly long, of the order of a year or more," he said. "In the meantime, the economic indicators may remain positive. The US economy did not enter recession until December 2007, five months after the early signs of trouble in the credit markets."
"Other advanced economies did not begin to display negative trends until well into the second quarter of 2008," he added. "If sovereign debt concerns are accompanied by worries over bank liquidity, any more significant than those currently influencing the credit market, another dip in world economic activity would seem a sure thing," he said.
© 2010 CNBC.com
Brazil's Lula Vaults into Big League of World Diplomacy
By Erich Follath and Jens Glüsing | 05/25/2010
Brimming with confidence, Brazilian President Luiz Inacio da Silva is raising his country's global status with increasing forays into international politics. In his most recent coup, he convinced Iran to agree to a controversial nuclear deal. Could it offer an opportunity to avoid both sanctions and war?
He was accused of being many things in the past, including a communist, a coarse proletarian and a drinker. But those days are long gone. As Brazil ascends to become a new economic power, his reputation has experienced a meteoric rise. Many now view Brazil's president as a hero of the southern hemisphere and an important counterweight to Washington, Brussels and Beijing. The American news magazine Time took things a step further two weeks ago when it named him the "world's most influential political leader," even ahead of US President Barack Obama. In his native Brazil, there are many who see him as a candidate for the Nobel Peace Price.
And now this man, Luiz Inácio da Silva, 64, nicknamed "Lula" ("Squid"), who spent his childhood in a slum as the son of illiterate parents, has scored yet another political coup. In a marathon meeting, he negotiated a nuclear deal with the Iranian leadership. On Monday, he appeared triumphantly at the side of Turkish Prime Minister Recep Tayyip Erdogan and Iranian President Mahmoud Ahmadinejad. The three leaders reached an agreement that they believe would take UN sanctions against Iran over its possible nuclear weapons program off the agenda. The West, which had been pushing for a tightening of international punitive measures, looked duped, even taken by surprise.
But Washington's counterattack came the next day, opening a new chapter in the simmering nuclear dispute, in which Beijing, in particular, had long resisted a tougher approach. US Secretary of State Hillary Clinton announced: "We have reached agreement on a strong draft with the cooperation of both Russia and China." The planned sanctions resolution was sent to all members of the United Nations Security Council, including Brazil and Turkey. The two countries are both two-year elected members of the 15-member body, which must accept a resolution with at least nine votes before it can take effect.
US Adamant on Sanctions
Clinton specifically thanked Lula for his "sincere efforts." But her expression clearly suggested that she perceived his efforts as more of an impediment than anything else. "We are proceeding to rally the international community on behalf of a strong sanctions resolution that will in our view send an unmistakable message about what is expected from Iran," Clinton said.
But isn't Lula's less confrontational approach in the nuclear dispute much more promising? Will it be this easy to slow down Lula Superstar, who has the support of NATO member Turkey? Anyone who has followed his career will find it hard to believe. This man has always prevailed against all resistance, and all odds.
The father left the family when Lula was young, and the mother moved with her eight children from northeastern Brazil to the industrialized south, where she hoped to improve the family's chances. Lula didn't learn to read and write until he was 10. As a child, he helped support the family by working as a shoeshine boy and fruit seller, and toiling in a paint factory. He eventually managed to secure an apprenticeship as a toolmaker. When he was 25, his wife Maria and their unborn child died, because the family couldn't afford adequate medical care.
Lula became politically active as a young man, when he joined the union and organized illegal strikes in the days of the military dictatorship. He was arrested several times in the 1980s. Dissatisfied with the classic leftists, he founded his own workers' party, which he gradually transformed from a Marxist to a social democratic party. He made three unsuccessful bids for the presidency until, on his fourth try, he won the 2002 presidential election by a significant margin. It was the poor and the poorest who, in a country of extreme economic contrasts, placed their hopes in the charismatic labor leader. When Lula won the election, the super rich, fearing expropriation, made sure that their private jets were kept fueled up.
Hero of the Poor Refrained From Revolution
But those who had hoped for or feared a revolution in Brazil were surprised. After his inauguration, Lula took some of his cabinet members to a slum, and he launched a large-scale program called "Fome Zero" ("Zero Hunger") to alleviate the hardships of the underprivileged. But he did not frighten the markets. Increases in commodities prices and a modern economic policy that emphasized foreign investment and domestic education and training resources helped Lula gain re-election in 2006.
His term expires in December, at which point he will not be eligible to run for re-election. He has put the house in order domestically by grooming a potential successor. But the self-confident president evidently wants to leave a foreign policy legacy too: He regards it as his duty to turn Brazil, with its population of 196 million, into a major world power and to secure a permanent seat for his country on the UN Security Council.
Lula has recognized that it helps to maintain good relations with Washington, London and Moscow in pursuit of this goal. But he also knows that close ties to countries like China and India, as well as Middle Eastern and African countries, could be even more important. He sees himself as a man of the "south," and as a leader of the poor and disenfranchised. And, of course, he also recognizes the shifts that are taking place. Last year, for example, the People's Republic of China surpassed the United States as Brazil's biggest trading partner for the first time.
Lula is the only head of state who attended both the exclusive World Economic Forum in Davos, Switzerland, and the World Social Forum, which is critical of globalization, in Porto Alegre, Brazil. He is an indefatigable globetrotter, having visited 25 countries in Africa alone, many Asian countries and almost every country in Latin America -- always with an economic delegation in tow. He relentlessly preaches his creed of a multipolar world. And because Lula is a charismatic speaker and an "authentic" labor leader, crowds around the world cheer him on as if he were a pop star. At the 2009 G-20 summit in London, US President Barack Obama, apparently a fan, said: "I love this guy."
In the meantime, Obama can no longer be certain whether Lula is indeed "his man." The Brazilian is becoming more and more self-confident as he distances himself from Washington and, at times, even seeks confrontation.
Mounting Self-Confidence
Honduras is a case in point. The United States, which has always seen Central America as its back yard, was astonished when Lula gave ousted President Manual Zelaya refuge in the Brazilian Embassy in Tegucigalpa last year and demanded a voice in the solution of the conflict. By refusing to recognize the new president, Brasilia openly opposed Obama.
Things happened very quickly after that. Lula traveled to Cuba, where he met with Raul and Fidel Castro and called for an immediate end to the American economic embargo. To the delight of his hosts, he likened the regime critics suffering in Havana's prisons to common criminals. Lula also made a point of appearing with Venezuelan President Hugo Chavez, who breathes fire and brimstone against Washington and is increasingly gagging the press in his country. Speaking to SPIEGEL, Lula characterized the autocratic leader as "the best president of Venezuela in the last 100 years."
And when he received Ahmadinejad in Brasilia a few months ago, he commended the Iranian president for his supposedly flawless election victory and likened the Iranian opposition movement to frustrated football fans. Brazil too, he said, would not allow anyone to interfere with its "obviously peaceful" nuclear program.
Despite this closing of ranks, many were skeptical when Lula headed for Tehran to negotiate a nuclear deal with the Iranian leadership, particularly after the Iranians had shown almost no willingness to compromise in recent months. At a joint press conference with Lula, Russian President Dmitry Medvedev rated the chances of an agreement brokered by Brazil at no more than 30 percent. Lula countered by saying: "I'd say they are 99 percent." There it was again, the rising political star's pronounced ego. "He thinks he's a miracle worker who can achieve things where others have failed," says Michael Shifter, an American expert on Latin America.
Part 2: Breakthrough or Flop?
At this point, there is only circumstantial evidence that a "breakthrough" was truly achieved in Tehran after 17 hours of negotiation. It is also possible that the meeting was, in fact, what the German newspaper Frankfurter Allgemeine Zeitung characterized as a "flop," just another way for the Iranians, who have often been devious in the past, to stall the world once again.
Officials at the International Atomic Energy Authority (IAEA) in Vienna cautiously said that any development in the direction of nuclear compromise is progress. The IAEA's inspectors are responsible for inspecting nuclear facilities worldwide on behalf of the UN. They have recently found more and more signs of an illegal Iranian nuclear weapons program and have urgently called on Tehran to be more cooperative. The assessment of the Vienna-based agency's experts, whose line of communication with Tehran was never severed and who never assumed anything that they couldn't prove, will now carry a lot of weight. The fact that the Iranians are only willing to make the text of the agreements available to the IAEA "in one week" has fostered doubts.
Western governments have been very skeptical, and the UN resolution Clinton made public so soon after the Tehran agreement apparently has the Israelis worried. Some members of Prime Minister Benjamin Netanyahu's hardline government are openly criticizing the deal as a ruse to take international pressure off Tehran. Trade Minister Benjamin Ben-Elieser says Tehran is apparently "trying to give the entire world the runaround once again."
Deal Provides Iran With Loophole
The American ISIS institute, which has always advocated a negotiated solution and feels that the "military option" for solving the Iranian nuclear issue is unthinkable, has offered an insightful assessment of the Lula-Ahmadinejad-Erdogan agreement. In the assessment, the institute's independent nuclear experts list their concerns and point out the weak points of the text of the agreement revealed to date.
The Iranians only agree to ship 1,200 kilograms (2,640 lbs.) of their low enriched uranium to Turkey, for which they want fuel for their Tehran research reactor in return. The dimensions of the agreement correspond to those of a deal proposed by the IAEA last October, under which more than three quarters of the uranium produced in Iran would have been taken out of the country, thereby making bomb construction impossible. It was meant to be a confidence-building measure to provide breathing room for negotiations.
However, the current deal ignores the fact that Iran, after having started up its centrifuges in Natanz, apparently already has more than 2,300 kilograms of uranium. In other words, the agreement would allow Tehran to keep almost half of the material, a basic ingredient in a nuclear bomb, so that it would still have enough raw material to reach nuclear weapons "breakout capability."
The agreement also offers Tehran a key loophole: It grants the Iranian leadership the right to get its uranium back from Turkey if, in its opinion, any clause of the agreement is "not upheld." Most important, the agreement does not require Tehran to suspend uranium enrichment. "We wouldn't dream of it," an official said. But this is precisely what the UN has unequivocally demanded in what have now been three rounds of sanctions.
All these objections don't worry Lula. He has shown that he can no longer be ignored on the world stage. Last Tuesday, the Brazilian president's friends lauded his peacemaking efforts at the Latin America-EU summit in Madrid . His appearance there was designed to show that the "squid" has many arms. He has proven that he can swim along with the big sharks.
Behind the scenes, Lula Superstar likes to talk about how he forced Brazil's diplomats to shed the "mongrel syndrome," his term for the deeply entrenched inferiority complex many of his fellow Brazilians had toward Americans and Europeans until recently.
It was in 2003, at Lula's first major international appearance, at the G-8 summit in Evian, France. A group of people was sitting in the lobby of the conference hotel, waiting for then US President George W. Bush. When the Americans finally walked into the room, everyone stood up -- except Lula, who ordered his foreign minister to remain seated, as well. "I will not take part in this subservience," the Brazilian president said. "After all, nobody stood up when I walked in."
Translated from the German by Christopher Sultan
Silva's light reflects on Brazil
He sees Iran deal boosting country's role as power broker
SAO PAULO, Brazil | Brazil's president says Iran's agreement to a nuclear fuel deal he helped craft proves his nation finally has become a new global power broker.
Yet most of the credit headed Brazil's way may well go to Luiz Inacio Lula da Silva himself. The leader, famously popular at home and abroad, is leaving office soon to a more obscure successor even as he looks for his own new challenges.
"Clearly this is a huge political home run for Lula," said Christopher Garman, who heads Latin American research for the Eurasia Group consulting firm in Washington. "He has rounded up the end of his term in a big way: He used his personal political capital and is playing a role in the Middle East."
Mr. Silva is a long-standing icon of Latin America's Marxist-influenced left who enchanted investors by embracing market-friendly policies as president. With a jovial, plain-talking style forged as a labor leader, he has bonded with George W. Bush and with Venezuela's Hugo Chavez. He has traded jokes with Barack Obama and bear hugs with Iran's Mahmoud Ahmadinejad.
Mr. Silva portrayed the deal as a victory for his own nation and for another emerging power, Turkey, which has opposed U.S. and European efforts to impose sanctions on Iran for its nuclear-fuel enrichment. Analysts said their stand may have made it easier for Iran to accept a compromise that might have looked like a capitulation if it had been brokered by a less friendly country.
Mr. Silva has long urged a greater global role for developing nations — and a bigger place in a United Nations now dominated by a handful of countries that are permanent members of the Security Council. "Brazil believed that it was possible to reach a deal," Mr. Silva said last week on his weekly radio program, recorded in Tehran after the deal was signed. "I think that diplomacy came out victorious today. I think it was a result that shows we can build peace through dialogue."
It's not clear if the deal will satisfy the international community, though it is similar to a U.N.-drafted plan, backed by Washington and its allies, meant to deprive Iran of enough stocks of enriched uranium to produce a nuclear weapon. The Turkish-Brazilian negotiating effort bucked the wishes of a skeptical White House. While Washington initially said the outcome could be a "positive step," Iran then said it would keep enriching uranium on its own, something that could help it develop a nuclear weapon. Even though the deal pushed forward by Mr. Silva may go nowhere, just getting an agreement out of Iran was an international coup for Brazil's first working-class president, who repeatedly has argued that his country has earned the right to a permanent, prominent role in international affairs.
La brasileña Marfrig compra firma irlandesa
EFE, Río de Janeiro ()
Miércoles 26 de mayo de 2010
La brasileña Marfrig Alimentos, cuarta productora mundial de carne bovina y segunda exportadora de carne de pollo, adquirió el 100% de las acciones de la procesadora de aves O'Kane Poultry, de Irlanda del Norte, por 26 millones de libras esterlinas (unos u$s 37,5 millones).
La firma que posee la mayoría accionaria de Quickfood en la Argentina informó en un comunicado a la Bolsa de Valores de San Pablo, que pagará la mitad de ese monto cuando se cierre el negocio y la otra mitad en junio de 2011.
La compañía agregó que la procesadora irlandesa será asumida por Marfrig Holdings (Europa) BV y Moy Park, dos de sus subsidiarias en Europa. O'Kane Poultry, con sede en Ballumena, se especializa en la producción y el procesamiento de carnes de aves y cuenta con una fábrica de raciones, incubadoras, granjas, unidades de procesamiento y un laboratorio de investigaciones.
Según Marfrig, la firma adquirida tiene capacidad para procesar diariamente 120.000 pollos y 5.000 pavos, y cerró el año pasado con ventas por 132 millones de libras esterlinas (unos u$s 190,5 millones).
La empresa distribuye entre las principales redes comerciales del Reino Unido cerca de 500 productos diferentes, entre frescos, industrializados y platos para restaurantes de comidas rápidas.
Marfrig, con 93 plantas y oficinas en Norteamérica, Sudamérica, Asia, África y Europa, procesa y distribuye en cerca de 100 países carne bovina, porcina, ovina y avícola y diferentes productos alimenticios.
