Emerging Markets: Brazil

Roundup

 

By Antonio Guerrero

 

Brazil

Cotton on: End of trade battle gives hope in ethanol dispute

The Brazilian government launched the second phase of its economic stimulus plan, this time involving an estimated $883 billion in infrastructure investments through 2016. The Growth Acceleration Program 2 (PAC 2) will focus on increasing energy output, building 2 million homes and preparing the country to host the 2014 FIFA soccer World Cup and 2016 Olympic Games. Also included is construction of high-speed rail lines between São Paulo and Rio de Janeiro, the country's two largest cities. PAC 1, not yet fully completed, includes construction of 1 million homes and is aimed at boosting economic growth. Finance minister Guido Mantega says PAC 2 will guarantee an estimated 5% annual GDP growth and predicts 5.5% average growth through 2014.


Sinopec Group, China's second-largest energy company, completed construction of the $1.3 billion Gasene natural gas pipeline in Brazil, marking the company's largest overseas contract. The 856-mile pipeline can transport 20 million cubic meters of gas per day. China has steadily increased its Brazilian energy sector investments, including last year's $10 billion loan to Petrobras, Brazil's state-controlled oil company, in exchange for oil supplies.


Petrobras reduced its 2011-2014 investment plan by $8.3 billion, to $138.8 billion. The company will focus on equity markets for capital expansion this year and will not tap bond markets until the second half of 2010. The capitalization plan will give the government new Petrobras shares in exchange for new oil field concessions.


The Brazilian government temporarily removed a 20% tariff on ethanol through December 31, 2011, in a move to pressure the United States to lift its own tariffs on imported ethanol. Brazil, the world's largest ethanol exporter, has maintained a trade battle with the US, the world's largest ethanol producer, to gain market entry. The US and Brazil recently ended a long-standing trade dispute over cotton, avoiding Brazil's scheduled application of $830 million in WTO-approved sanctions against the US. Brazilian cotton producers had complained that US subsidies to American growers violated WTO rules.

 

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