When Brazilian president Luiz Inácio Lula da Silva was sworn in for a second term in January, he vowed to make economic growth and job creation the focus of his administration. The president promised to accelerate GDP growth to 5% in 2007, nearly doubling 2006’s expansion. Analysts say he provided little detail as to how he intends to do so and instead suggest year-on-year growth of 3.5% is more likely.
Growth in 2007 will be aided principally by exports and a decline in the Selic benchmark interest rate to around 11.5% by year-end. Strong exports will be a key growth engine, with the trade surplus expected to hit $40 billion this year, boosted by demand for commodities and growth in ethanol output. The 2006 trade surplus exceeded official goals, at $46.1 billion.
“Lula may have been a disappointment for members of the left, but he successfully consolidated the reforms that were enacted during the 1990s,” wrote Walter Molano, head of research at BCP Securities. Molano predicts ratings agencies should grant Brazil a coveted investment-grade rating “by the end of this year or the beginning of 2008.”
Construction could bring new investment opportunities. “Brazilian gross capital investments should exceed 20% of GDP in the next five years, of which nearly 60% will be in civil construction,” predicts a report by Merrill Lynch. The investment bank expects the government to seek partnerships with private sector investors for infrastructure projects.
December and January saw a surge in debentures issues. BNDESPar, the investment arm of the BNDES development bank, issued the first $277 million tranche of its new debentures program, which contemplates $900 million in issuance over the next two years. Cemig, the energy company for the state of Minas Gerais, and CPFL, the electrical utility for the state of São Paulo, issued $465 million via Unibanco and $298 million via Citibank, respectively. Net Serviços, a pay-TV operator, also issued another $270 million in debentures through Bradesco.