Published by Minyanville

In an attempt to attract foreign investment, Brazil is looking to begin leasing farmland to foreigners. Legal problems forced many foreigners away from buying large plots of land after the attorney general’s office reinterpreted real estate law as it became concerned at Middle Eastern and Chinese sovereign wealth funds’ speculation

However, President Dilma Rousseff is looking to ease the legal minefield for genuine investors while still putting off speculators. She may be concerned this week about consumer prices rising last month above the government’s inflation target, for the first time in six years. The 12-month consumer price index hit 6.51%, just breaking the 6.5% target. The index rose 0.77% in April, slightly down, however, from the 0.79% rise in March.

Hikes in global food prices as well as an increase in domestic demand have helped raise the index. The increase in domestic demand is down to greater credit access, lower unemployment and higher wages, says the Wall Street Journal.

With growth lower than expected, the government is welcoming the news: "We're at the turning point where inflation will trend downward," said finance minister Guido Mantega. Rousseff said this week that the only way to effectively control inflation in the medium and long term was to guarantee growth. “As such,” she said, “macroeconomic policy will always privilege growth and the expansion of the investment rate.”

Real vs. US Dollar

One of the country’s biggest problems right now is the real’s strength against the US dollar. The 49% gain since 2008 has fueled huge increases in imports, notably manufactured goods from China. Exports from Brazil are also made more expensive to foreigners. Last year saw a foreign trade surplus of $20.1 billion, down from the previous year’s $24.62 billion surplus. This year analysts expect it to drop dramatically to around $18 billion.

Brazil’s government is looking to the World Trade Organization (WTO) to begin a two-year study into the relationship between trade and currencies. With currencies pegged to gold when the WTO was established, times have changed, says Brazil, and so the WTO must study the issue again.

Ethanol Production Ramped Up

State oil company Petrobras is to triple its share of ethanol production across Brazil as the country struggles to meet demand. Currently at 5%, the oil company’s target will rise to 15% of the country’s share of the country’s national output.

The country was innovative in the use of ethanol. Many of its cars run on both gasoline and ethanol, however, much of that ethanol is now being imported from abroad.

The story is a similar one to many of Brazil’s industries. The growing middle classes, expanding with the economy, are demanding more fuel. With the financial crisis leading to lower investment and bad weather recently, there has been little growth in sugar cane production.

Just 1m litres of ethanol was imported by Brazil in 2009. This rose to 70m last year and is even higher this year-to-date. The idea of an export tax on sugar has been floated by the government.

Mining giant Vale (VALE) is set to invest slightly less than announced this year. The budget is set to fall to around $20 billion from the $24 billion previously announced. Delays in obtaining new equipment are to blame, according to company directors. A reduction in target production levels may also be announced later this year.

The World Cup Controversy

Three years before it kicks off, Brazil’s World Cup is causing controversy at home with evictions and human rights abuses in eight of the 12 cities hosting games, according to the United Nations (UN).

Both Amnesty International and the UN have attacked Brazil’s actions. With the World Cup in 2014, the Copa Americas in 2015 and the Olympics in 2016, many questioned whether the Latin American giant’s social divisions would be helped or hindered, according to Reuters.

The government has, however, hit back claiming that those facing eviction are much smaller in number than those poor people who will benefit from the improved infrastructure the games will bring in. Critics argue that Brazil is following the course taken by China in 2008, where 1.5m were evicted before the events.