MONEY stocks

Emerging Market Worries Prompt Wall St. Selloff, But Bulls Remain

Markets Turbulent On China Unease
Spencer Platt—Getty Images Traders work on the floor of the New York Stock Exchange (NYSE) on August 21, 2015 in New York City. The Dow fell over 150 points in morning trading as global markets continue to react to economic events in China.

Nervousness about China is overshadowing the improving U.S. economy, notes one portfolio manager.

The steep selloff that pushed down the benchmark Standard & Poor’s 500 index 5% over three days may say more about the outlook for emerging markets than U.S. companies in the fourth quarter, fund managers and analysts say.

China’s economic slowdown, recessions in Latin American countries such as Brazil and Chile, and a breakdown in commodity prices – combined with a thinly-traded market as many investors become more focused on tide charts than trading terminals – are prompting traders to overlook improving U.S. economic data, said Alan Gayle, portfolio manager at RidgeWorth Investments.

“There’s a great deal of nervousness around the weakness in China, and that’s overshadowing the fact that the U.S. economy is sound and the European Union economy is firming,” he said.

Sales of existing U.S. homes rose in July to their highest level since 2007. U.S. auto sales, meanwhile, are on track for their best year in a decade.

Attention will return to those domestic metrics as the Federal Reserve begins its annual meeting in Jackson Hole, Wyoming, next week. Investors will be looking for any signs that the central bank is increasingly worried about global issues or whether it is going ahead with what had been a widely-expected interest rate hike in September.

The Fed has said its decision to raise rates will depend on data such as an improving jobs market and housing market. Should the Fed signal that it plans to raise rates, investor sentiment towards the United States and emerging markets may further diverge.

Minutes released Wednesday of the central bank’s most recent meeting revealed Fed officials were concerned about “recent decreases in oil prices and the possibility of adverse spillovers from slower economic growth in China,” a detail which helped spark the selling.

At the same time, North Korea put its troops on war footing Friday after South Korea rejected an ultimatum to halt anti-Pyongyang broadcasts. The prospect of war, or signs of more global worries, could further dampen U.S. stocks in the week ahead.

The slowdown in China and other emerging markets such as Brazil is hurting commodity-related companies, but it is not enough to affect either 2015 or 2016 earnings estimates for the S&P 500 as a whole, said Gina Martin Adams, equity strategist at Wells Fargo. Second-quarter earnings rose 0.1% from a year earlier, an improvement from the expected decline of 3.4%.

Low energy costs should benefit consumer discretionary companies, which Martin Adams expects to grow earnings by 12% for the year, up from her previous forecast of 8%.

Mutual fund managers are also making bets on U.S. companies that get the majority of their revenues from the domestic market. The average large-cap fund is overweight in U.S.-focused companies, including JPMorgan Chase & Co, railroad Union Pacific,, American Express, and Comcast, according to research by Goldman Sachs.

Martin Adams estimates the S&P 500 will reach 2,222 over the next 12 months, an 11% gain from the 1,997 the index reached on midday Friday, after commodity prices bottom and earnings improve.

“The direction of the market is ultimately higher,” she said.

TIME brazil

Anti-Government Protesters Take to The Streets Across Brazil

Brazil Protests
Andre Penner—AP Demonstrators hold a sign that reads in Portuguese "Dilma out" during a protest demanding the impeachment of Brazil's President Dilma Rousseff in Sao Paulo, Brazil, Aug. 16, 2015

Protests took place in some 16 states

(SAO PAULO) — Brazilians took to the streets of cities and towns across the country Sunday for anti-government protests being watched as a barometer of discontent with the increasingly unpopular President Dilma Rousseff.

Called mostly by activist groups via social media, the demonstrations assailed Rousseff, whose standing in the polls has plunged amid a snowballing corruption scandal that has embroiled politicians from her Workers’ Party as well as a sputtering economy, a weakening currency and rising inflation.

But the protests drew relatively modest crowds, likely giving the president some breathing room. Huge numbers had come out for two earlier rounds of demonstrations this year.

Turnout appeared significantly lower in Sao Paulo, Brazil’s industrial and economic capital where dissatisfaction with Rousseff has run particularly high and protests in March and April drew thick crowds. The president’s supporters also staged a small counter-demonstration in front of the offices of her mentor and predecessor as president, Luiz Inacio Lula da Silva.

The Datafolha polling firm estimated 135,000 people demonstrated against Rousseff on Sao Paulo’s Avenida Paulista, one of the city’s largest avenues, while state police put the number at 350,000. Crowd-counting experts have long criticized Brazilian police estimates, saying they overestimate crowds by relying on photos of only the most crowded areas to estimate a gathering. Datafolha breaks the avenue up into sections and gauges density for each section.

In Rio de Janeiro, several thousand people, many brandishing green and yellow Brazilian flags, demonstrated at Copacabana Beach. The demonstration was planned to coincide with a cycling test event for next year’s Olympics in the city, but organizers changed the route and timing of the sports event to avoid a possible clash.

Protests took place in some 16 states, including in the Amazonian metropolis of Belem, Recife in the northeast, and the central city of Belo Horizonte. In the capital, Brasilia, a march on a central avenue flanked by ministries and monuments appeared to have drawn several thousand participants.

The demonstrations were called largely by web-based activist groups with demands ranging from Rousseff’s impeachment to a return to military dictatorship like the one that ruled the country in 1964-85.

But an end to corruption appeared to be a top demand. The widening probe into corruption at the state-run Petrobras oil company that began more than a year ago has exposed how widely official graft permeates Brazilian society, snaring top members of the Workers’ and other political parties as well as executives of powerful construction companies.

Marisa Bizquolo, who joined in the Sao Paulo protest, said she held Rousseff responsible for the Petrobras scandal.

“She must be impeached or resign for ultimately she is responsible for all the corruption and the economic mess this country is in,” said Bizquolo, a doctor. “But I am concerned that there is no one who could take her place and run a decent government. We have no leaders.”

Amid the corruption probe and an economic crunch that has seen the once-booming economy teeter on the brink of recession, Rousseff’s popularity ratings have fallen to a level not seen since 1992, when President Fernando Collor de Mello was forced from office after being impeached for corruption.

A poll earlier this month said only 8 percent of those surveyed considered Brazil’s government to be “great” or “good.” By contrast, 71 percent said the government is a “failure.” The Datafolha poll was based on interviews with 3,358 people on Aug. 4 and 5 and had an error margin of plus or minus 2 percentage points.

In a research note, the Eurasia Group political risk consulting firm called Sunday’s protests “an important signpost to monitor.”

“While calls for Rousseff to step down will be the headline of Sunday’s demonstrations … the greater risk for the government would be if massive protests become frequent and if they are followed by movements from organized labor,” the firm said.

In 2013, a wave of nationwide protests took analysts by surprise, with the largest crowds in a generation taking to the streets ahead of the Confederations Cup soccer tournament, a dry run for the 2014 World Cup held in Brazil. Protesters were angry over lavish spending on stadiums and other infrastructure for the tournament, which contrasted with the woeful state of Brazil’s public schools and hospitals.

Dissatisfaction over poor public services and high taxes continues to simmer here as the country gears up for the 2016 Olympics in Rio de Janeiro.

TIME brazil

Locals and Olympians Demand Clean Water for Life and Games on Rio’s Polluted Coast

Brazil Pollution Protest
Leo Correa—AP A woman flies Brazil's national flag on a boat during a protest in the Marina da Gloria in Rio de Janeiro on Aug. 8, 2015.

The proposed location for Olympic sailing poisons both athletes and locals

An unlikely boat brigade did a lap around Rio’s Guanabara Bay this weekend: racing shells, sailboats, schooners, and traditional line-and-hook fishing boats, with banners fluttering from their sides. They read “Living Bay,” and their chanting passengers called for the cleanup of waters where Olympic sailing trials begin on Saturday.

The Bay is scheduled to host the Olympic sailing events in 2016 but the government has not managed to adequately reduce the amount of raw sewage and industrial effluent that goes into the water. The Olympic sailing could be moved to another location but the millions of people will continue to live by this toxic body of water.

Rio residents have known since January that the government’s pledge, part of its pitch for the Olympics, to clean 80% of sewage going into the bay will not be met. Recent testing commissioned by the Associated Press found the water was so contaminated with human feces that Olympians risk becoming violently ill and unable to compete. In further evidence of dangerous pollution, 13 American rowers at an Olympic test event on the lagoon last weekend fell ill, and their team doctor said she suspected they were sickened by water-borne bacteria or virus.

While the water quality of the bay is dangerous for sports men and women, it affects local people every day. They joined with athletes at a weekend boat protest to pressure authorities to do more to clean the bay. The protesters included athletes and environmentalists but also fishermen who have lived and worked on the bay for generations.

Jorge Nunes de Souza, 60, is one of thousands of fishermen who learnt from his parents how to catch shrimp, anchovies, corvina and mullet from these waters, but now he tracks shrinking fish stocks so he can protest the effects of domestic and industrial waste on the water and fish. Rio’s oil industry has boomed in the last decade, which has led to Guanabara Bay receiving ever more runoff from new refineries and a petrochemical complex.

The success of the oil business has been partly at the expense of fishing. Federal University of Rio de Janeiro researcher Carla Ramôa Chaves found the number of traditional fishermen working in the bay fell from 4,774 in 1991 to 1,771 in 2010.

“In this economy, it’s hard to find a job elsewhere for people trained as fishermen,” says Nunes de Souza, “and there are very few opportunities in the high-poverty city outskirts that line a lot of the bay. I worry about the increasing number of young fishermen we lose to the drug traffic because they think a certain income is more likely there.”

Also on the protest was Isabel Swan, a Brazilian Olympic sailing medallist: “To find long-term solutions for a healthier bay, we need to consider everyone who is affected by the pollution. We all want a bay that’s alive. And Brazil deserves better than this,” she says.

Since 1995, the state of Rio has spent over a billion dollars on sewage treatment plants to reduce pollution in the bay. Through these projects, Rio pledged to hit its goal of 80% sewage treatment by 2016. For years, the plants sat idle or ran at partial capacity. Last week, Rio governor Luiz Pezão announced that 49% of sewage going into the bay was being treated and estimated that the bay could be cleaned by 2030.

Flavio Serafini, a Rio state congressman and boat protestor, said the governor had not announced a new plan, just a new deadline in order to avoid the blame. “Industrial waste is far less discussed than domestic waste, for example, but it is a huge issue that we’re trying to get better numbers on,” he says.

The boat protest closed with several musical performances, including a carnival marching band called “Nothing Should Seem Impossible to Change.” It is one of several politicized bands in Rio’s street carnival that make off-season appearances for special occasions. “Through culture, we’re trying to engage more people with this topic,” says Mayara Jaeger, 23, an environmental studies student who helped organize the protest. “When I demonstrated in the leadup to the World Cup, we were trying to build a critical view of mega-events. Now that criticism is widespread, so we’re trying to do what the mega-event does not, which is construct solutions for the city together with a diverse range of people.”

Jorge Nunes de Souza reflected that he’d been part of a boat protest before, of traditional fishermen against a trash-dumping neighbor in 2003. This is the first time he protested with an Olympic sailor. “It makes sense, though, because we’re both professionals of the bay,” he says. “Our tactics to get it clean before have not worked, so maybe this will.”

TIME brazil

U.S. Rowers Fall Ill at Championships in Brazil

Brazil OLY Rio 2016 Filthy Water
Silvia Izquierdo—AP Rowers practice for the 2015 World Rowing Junior Championships on Rodrigo de Freitas lake in Rio de Janeiro on Aug. 4, 2015.

The water had high levels of viruses

(RIO DE JANEIRO) — Thirteen rowers on the 40-member U.S. team came down with stomach illness at the World Junior Rowing Championships — a trial run for next summer’s Olympics — and the team doctor said she suspected it was due to pollution in the lake where the competition took place.

The event took place amid rising concerns about the water quality at venues for the Rio de Janeiro Olympics, now less than a year away.

The Americans were by far the hardest hit at the regatta that concluded over the weekend, with reports of vomiting and diarrhea. Other teams in the competition reported some illnesses, according to World Rowing, the sport’s governing body, but those were about as expected at an event that featured more than 500 young rowers.

On July 30, The Associated Press published an independent analysis of water quality that showed high levels of viruses and, in some cases, bacteria from human sewage in all of Rio’s Olympic and Paralympic water venues, including the Rodrigo de Freitas Lagoon, where the rowing competition took place.

U.S. coach Susan Francia, a two-time Olympic gold-medal rower, said in an interview with the AP that 13 athletes and four staff members — including herself — suffered various gastrointestinal symptoms during the team’s two weeks of training in Rio.

Dr. Kathryn Ackerman, the U.S. team physician, said athletes from several other countries stayed in the same hotel as the Americans, but did not seem to get as sick as her rowers.

“I don’t know if it was the water bottles in the boats, or hygiene precautions that some athletes are really good about and others weren’t,” she said.

Officials did not rule out that the Americans could have gotten ill from food or drinking water.

“We’re not really sure. My personal feeling is, I think it’s from the lake,” Ackerman said.

Francia said she lacked the data and information to directly blame the illness on the venue, but added: “It just doesn’t seem normal.”

She warned athletes coming for the Olympics that “you should know when you’re coming next year that you have to be smart about how you are preparing.”

Francia said the U.S. team had taken precautions about competing in the polluted lake beneath Rio’s picturesque Christ the Redeemer statue, “but maybe we were not as strict in enforcing them as we should have been from the beginning.”

“As soon as kids started going down, we were bleaching oar handles, we were immediately washing hands after coming off the water,” she said. “Other countries didn’t allow water bottles at all. Other countries had water bottles in zip-locked bags.”

US Rowing, which oversees the sport in the United States, said it is investigating what sickened the athletes, who range in age from 16-19. None are likely to be Olympians next year.

Rowing officials will debrief the athletes when they return to the U.S., likely through the rest of the week. They will talk to the athletes, review protocols for cleanliness.

Ackerman said she became worried when one U.S. boat tipped over in the lake, although the athlete who got thrown into the water was not among those who became ill.

“Obviously we were all concerned because we know the water’s polluted,” she added.

A spokesman for the Rio organizing committee on Monday attributed American team illnesses to “class travel symptoms” and said an event doctor treated eight Americans, three Britons and three Australians for symptoms including diarrhea.

The Americans’ experience is almost certain to raise more concerns for the Olympics. About 10,500 athletes will attend the Summer Games, and 1,400 will participate in rowing, sailing, triathlon, canoeing and distance swimming in the waters around Rio.

“You don’t want to see athletes in the boat-park vomiting,” Francia said, recounting that the competitor she saw get sick was not an American. One of the U.S. rowers did faint in a dining area, she added.

The AP analysis of water began in March and was performed by noted Brazilian virologist Fernando Spilki, coordinator of the environmental quality program at Feevale University in southern Brazil. It showed dangerously high levels of viruses from sewage in all Olympic venues. The samples were checked for three types of human adenovirus, as well as rotavirus, enterovirus and fecal coliforms.

These are viruses that are known to cause digestive and respiratory illnesses, including explosive diarrhea and vomiting, but can also in rarer cases lead to more serious heart, brain and other diseases, such as hepatitis A.

The AP testing, which will continue through the Olympics, also checked for bacterial fecal coliforms — which at times during the study peaked at the Olympic lake to 10 times the acceptable limit for secondary contact per Brazilian regulations.

In two separate emailed statements following the AP study, the World Health Organization affirmed it was advising the International Olympic Committee “to widen the scientific base of indicators to include viruses.” The WHO underscored that it’s actually up to the local Olympic organizing committee in Rio to order that viral testing be done.

However, in an emailed statement Monday, the organization reversed course and said that “WHO has not and will not issue an ‘official recommendation’ on viral testing.”

The local committee has not responded to repeated requests for information on whether it will order the viral testing.

Matt Smith, the head of World Rowing, said he wants the IOC and local organizers to ask the state of Rio de Janeiro to do viral testing in the run-up to the Olympics.

However, the Rio state environment agency does not have the equipment or the trained personnel to carry out viral testing of water, according to local virologists. The agency confirmed it only does bacterial testing, since that is all Brazilian law, like that of most nations including the U.S., demands.

Smith said the rowing, sailing, swimming, canoeing and triathlon federation could unite to test if the Rio state officials declined to.

“If they don’t agree, or don’t want to, we will discuss together what to do and probably finance our own test,” Smith said.

Peter Sowrey, the CEO of sailing’s world governing body ISAF, told AP he would seek independent testing for viruses “to understand exactly what we are dealing with.”

Sailing will take place in Guanabara Bay, rowing and canoeing in Rodrigo de Freitas, and triathlon and swimming off Copacabana Beach.

Peter Cookson, the high-performance director for the Canadian team, said he had “absolutely no problems” at the regatta. But he had questions about risks.

“I’m not an expert in viruses. We’ve never encountered this,” he said. “I’m struggling with what the right answer is to protect the rowers.”

Rio Mayor Eduardo Paes and IOC member Carlos Nuzman, who heads the local organizing committee, appeared at the venue over the weekend.

Paes, who has repeatedly acknowledged that Rio “missed an opportunity” to clean its waters for the Olympics, said he would follow the IOC’s lead on viral testing.

“The IOC needs to tell us that we need to,” he said. “The Brazilian law doesn’t tell us to do that (viral testing). They just tell us to do the standards of the Brazilian law. And if the IOC wants it, we’ll do it.”

Swiss rower Katharina Strahl, noting that the lake was “smelly in a few places,” was able to joke about the pollution.

“I don’t think in this lake they’ll be throwing the coxswain into the water,” she said.

___

Associated Press writer Brad Brooks contributed to this report.

TIME movies

Watch an Exclusive Clip From the Brazilian Film The Second Mother

The movie tells the story of an obediant housekeeper and her rebellious daughter

In the acclaimed Brazilian film The Second Mother, class tensions play out in everyday activities, from eating the master’s ice cream to swimming in his pool.

Val (Regina Casé) is a dutiful housekeeper—so dutiful that she’s practically raised her boss’s son as her own, while her real daughter grows up far away, a voice on the other end of a phone call. She dotes on her masters warmly (she buys the lady of the house a set of espresso cups for her birthday) and seems blind to their disrespect for her (when the lady refuses to put the espresso set out for company, Val says, “But you said to save them for a special occasion!”). This all changes when her daughter, Jéssica (Camila Márdila) comes to stay with the family in São Paulo, shocking her mother by asserting herself in front of her hosts.

The movie (titled Que Horas Ela Volta? in its home country) was written and directed Anna Muylaert; it won a Special Jury Prize for Acting for its two heroines at the Sundance Film Festival, and the audience award at the Berlin Film Festival. Watch this exclusive clip and catch the film in theaters Aug. 28.

TIME brazil

Brazilian Police Killed More Than 5,000 Civilians in Rio Between 2005 and 2014, Report Says

Brazil Beefs Up Security Ahead Of Olympic Games
Bloomberg—Bloomberg via Getty Images Armed officers from the Pacifying Police Unit (UPP) patrol in the Providencia favela of Rio de Janeiro, Brazil, on Monday, June 22, 2015.

The report, by Amnesty International, also suggests killings are largely performed with impunity

A new 90-page report from Amnesty International titled You Killed My Son says law enforcement claimed the lives of 5,132 Brazilians in the city of Rio de Janeiro between 2005 and 2014, out of a total 8,466 killings in the state of Rio de Janeiro during that period.

It also makes the chilling allegation that 9 out of 10 police killings in 2014 and 2015 in one Rio favela, Acari, were “extrajudicial executions” — the intentional, illegal killing of a person after they have already surrendered or been apprehended.

Nearly 16% of Rio’s homicides in 2014 were committed by police officers, Amnesty alleges. Furthermore, the report suggests that these killings are by and large performed with impunity. Amnesty found that of 220 investigations opened into alleged police killings in Rio in 2011, “only one case led to a police officer being charged,” and that as of this past April, “183 investigations were still open.”

“The lack of adequate investigation and conviction of the perpetrators of police killings sends a message that these crimes are tolerated by the authorities, which in turn fuels a cycle of violence,” the report says.

The report comes almost exactly a year prior to the opening ceremonies of the 2016 Summer Olympics in Rio, which have attracted pre-emptive scrutiny for potential infrastructure, security and health risks.

TIME brazil

WHO Seeks Virus Tests After Sewage Found in Rio’s Olympic Waters

rio de janeiro brazil water
Ricardo Moraes—Reuters A fisherman casts his line as birds fly over the Sao Conrado beach in Rio de Janeiro on Feb. 26, 2015.

Officials are concerned about athletes' health

(RIO DE JANEIRO) — The World Health Organization has asked the IOC to analyze virus levels in Rio de Janeiro’s Olympic waters, and the governing body of world sailing says it will start doing its own independent virus tests.

The moves come after an Associated Press investigation showed a serious health risk to Olympic athletes in venues around Rio rife with sewage.

In a statement to the AP, the World Health Organization said it suggested the International Olympic Committee start monitoring for viruses at the Rio venues.

“WHO has also advised the IOC to widen the scientific base of indicators to include viruses,” the statement said. “The risk assessment should be revised accordingly, pending the results of further analysis. The Rio Local Organizing Committee and the IOC are requested to follow WHO recommendations on treatment of household and hospital waste.”

A spokesman from the Rio organizing committee referred comment to the IOC, which is meeting in Kuala Lumpur, Malaysia.

Olympic organizers and the Brazilian government have tested only for bacteria to decide if the water is safe. Many experts say viruses are a far bigger problem and need to be monitored.

The International Sailing Federation said independently it would start testing for viruses.

“We’re going to find someone who can do the testing for us that can safely cover what we need to know from a virus perspective as well as the bacteria perspective,” Peter Sowrey, chief executive of the ISF, said. “That’s my plan.”

The sailing venue in Guanabara Bay is badly polluted, as is a separate venue for rowing and canoeing — Rodrigo de Freitas lake — in central Rio. The AP investigation also showed venues for triathlon and open-water swimming off Copacabana Beach had high virus levels that pose a threat to athletes and tourists.

Sowrey, who spoke from Kuala Lumpur, has a local interest. His wife Alesandra is a native of Rio, and he has a 9-year-old daughter Marie.

“I’m a father myself,” Sowrey said. “I want to make sure that everyone who goes out in the water is as safe as possible and is given the right guidance and right security.”

The AP analysis showed dangerously high levels of viruses and bacteria from sewage in venues where about 1,400 athletes will compete in water sports, in the games which open in a year — Aug. 5, 2016.

In Rio, much of the waste and sewage goes untreated and runs down hillside ditches and streams into Olympic water venues that are littered with floating rubbish, household waste, and even dead animals.

At the world swimming championships in Kazan, Russia, swimmers said they were worried about the situation in Rio.

“The athletes and the athletes’ commission have expressed their concern at the current problems with the quality of water, the cleanliness of the water,” Vladimir Salnikov, a former Olympic gold-medal winner, said. “That will be put into a recommendation, and people will pay attention to that.”

Shin Otsuka, an executive board member of the International Triathlon Union, said on Friday his body was considering testing for viruses.

The ITU is holding an Olympic qualifying race on Sunday using the waters off Copacabana Beach.

Costa Rican triathlete Leonardo Chacon said he knows the risks, but will take them.

“We know we are exposed to viruses, maybe to a health problem later,” he said on Friday in Rio. “But in my case, I have invested so much to prepare myself for this, and I want this to happen because I can’t recuperate this investment any other way other than competing and winning the points that I need to win.”

When Rio was awarded the Olympics in 2009, it promised cleaning its waters would be an Olympic legacy. But Rio Mayor Eduardo Paes has repeatedly acknowledged this will not be done, calling it a “lost opportunity.”

Sowrey said the ISAF would start doing its own water testing in Rio this month, no longer relying solely on Brazil’s government analysis.

“We want to make sure we keep pressure on the organizing committee and the Brazilians to make sure they put some energy into cleaning up the bay,” Sowrey said. “My job is to make sure something actually happens and it’s not just talk, and someone is actually walking the walk.”

Sowery said he received a call from a woman who wanted reassurance that the ISAF was giving the right guidance to her child and others competing in an Olympic sailing test event this month in Rio.

He said a “backup plan” included sailing all the events outside Guanabara Bay in the open Atlantic. The ISAF has three courses there, and three inside the bay.

He said it would be “‘heartbreaking” to sail outside the bay and lose the postcard backdrop of Sugarloaf Mountain, which will be a focus of television coverage.

In most Olympics, sailing is contested far from the main Olympic venues. In Rio, the sailors and rowers and canoeists get center stage — a chance to win fans and valuable sponsors.

“We’re not going to sacrifice health for the sake of good pictures and good TV,” he said. “But the backdrop of Rio is an amazing backdrop, and will do something for the sport of sailing.”

TIME brazil

These 5 Facts Explain Brazil’s Crippling Scandals

Brazil Dilma Rousseff
Giuseppe Lami—AP Brazilian President Dilma Rousseff speaks during a joint press conference with Italian Premier Matteo Renzi, at Chigi's Premier Palace in Rome on July 10, 2015.

From a tanking economy to rampant corruption scandals, the 'B' in BRICS is in trouble

There are a series of scandals growing in Brazil, Latin America’s biggest country and one of the world’s most important emerging markets. The fallout could bring down a president who was reelected less than a year ago. Here are the 5 facts that tell the story:

1. Brazil’s Economy

Scandals are most damaging when an economy is slowing down. Brazil had a $2.35 trillion economy in 2014, the seventh-largest in the world. But 2015 has gotten off to a rocky start; foreign investment is down from $39.3 billion in the first five months of 2014 to $25.5 billion this year. Overall investment in the country has fallen for seven straight quarters.

Even worse, Brazil’s currency, the real, has lost 20 percent of its value since January. This by itself isn’t a bad thing—a less valued currency should make its assets cheaper and more attractive to foreign investors. Instead, Brazil’s economy is expected to shrink 1.5 percent this year.

Political scandals, and the uncertainty they create, are helping to scare off investors. The most visible involves Petrobras, the state-controlled oil company. As the scandal has unfolded, Petrobras stock has fallen 60% over the past year, and the company has had to write off $2 billion in bribery-related costs, while grappling with low oil prices.

(World Bank, Economist, Google Finance, CNN Money)

2. Petrobras Investigation

Why is a corruption scandal involving one company causing such shockwaves? Because it implicates the country’s highest political officials. The scandal began in March 2014, when Petrobras’s chief of refining was caught in a money-laundering investigation. In a bid for leniency, he confessed that companies awarded contracts from his division had diverted 3 percent of each contract’s value into political slush funds. Most of the money went to members of the governing Workers’ Party or their coalition allies. Initial estimates value the bribes at nearly $4 billion. Over two dozen executives from Brazil’s largest construction companies have already been arrested, and more than 50 politicians are now under investigation.

(Economist, WSJ)

3. Dilma Rousseff

This scandal could reach to the political mountaintop, because current Brazilian President Dilma Rousseff served as energy minister and chairwoman of Petrobras during the years of alleged corruption. There is still no evidence that Rousseff had knowledge of wrongdoing. But given the number of politicians from her Workers’ Party implicated in the scandal, a growing number of people say she is at least guilty of unpardonable negligence. Political opponents are calling for her impeachment, and the public’s suspicion is reflected in her poll numbers. In June 2012, Rousseff enjoyed a 59 percent favorability rating; in March 2014, around the time the scandal broke, her numbers had fallen to 36 percent. Her favorability rating has now plummeted to just 15 percent, according to Brazilian pollster CNT-MDA. Nearly 63 percent of Brazilians favor impeachment. On March 15, 1 million demonstrators gathered to protest Rousseff and the corruption of her government and the worst is probably yet to come.

(Financial Times, Bloomberg (a), Bloomberg (b), Reuters (a), Reuters (b))

4. Lula

Why? Because her mentor and political patron, former President Luiz Inacio Lula da Silva, is now being investigated for influence-peddling on behalf of Brazil’s construction giant Oderbrecht. Oderbrecht’s CEO was arrested last month on charges that he paid Petrobras nearly $155 million in bribes. When Lula left office, he held an approval rating of 90 percent, and Rousseff, his chosen successor, rode his coattails to the presidency. Rousseff should be worried; if Lula is indicted, he may blame Rousseff’s government, withdrawing his support for her. If so, Rousseff defenders within the ruling party may finally turn their backs on her.

Lula isn’t the only former president being investigated over Petrobras. Fernando Collor de Mello, Brazil’s president in the early 1990s, had over $1 million is cash and vehicles seized last week while investigators determine his role in Petrobras bribes.

(Wall Street Journal, Guardian, New York Times)

5. CARF and other scandals

Petrobras has dominated international headlines, but it’s not the only corruption scandal threatening the government. The latest involves the Administrative Council of Fiscal Resources (CARF), a division of the finance ministry. It’s alleged that some of its members, tasked with resolving tax disputes filed by corporations, ruled in favor of firms in exchange for 1 to 10 percent of the saved revenue. Over the last 10 years, the government is believed to have lost tax revenue of much as $5.8 billion. That’s nearly 50 percent more than the bribery figures associated with the Petrobras case. But because this case involves mid-level bureaucrats instead of top government officials, it receives far less attention from international media.

By the way, don’t forget Brazil hosts the 2016 Summer Olympics. Brazil has budgeted $8 billion for the Rio de Janeiro games—but Rio Mayor Eduardo Paes has bragged publicly that 57% of the financing will come from private sources instead of taxpayer pockets. Given Brazil’s current political climate, this news will raise eyebrows and new questions.

(Economist, Guardian)

 

TIME India

India’s Leader Wants His Country to Play Brazil at Soccer

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Getty Images

This should be interesting

Indian Prime Minister Narendra Modi wants the Indian soccer team—currently sitting at 156th spot in the global rankings—to play soccer powerhouse and five-time World Cup winners Brazil, currently ranked 6th.

He also wants India to meet the other nations comprising the BRICS bloc of emerging economies on the soccer field.

“India could host a football event next year,” Modi said at the ongoing BRICS summit in Ufa, Russia, on Thursday, according to the Times of India.

Whatever Modi’s intentions behind suggesting the event and volunteering to organize it, demonstrating India’s sporting prowess cannot be one of them. India recently lost to 174th-ranked Guam — a Pacific island nation of less than 200,000 people — in a recent World Cup qualifying match.

Among the other BRICS nations, 2018 World Cup hosts Russia are 28th, and South Africa (which hosted the 2010 World Cup) is at 70 followed by China at 77.

It remains to be seen whether Brazilian President Dilma Rousseff or her Chinese counterpart Xi Jinping will offer to host a cricket tournament to balance things out, but until then India should probably start practicing.

TIME health

Brazil Tries to Cut High Rate of C-Section Births

Over 8 in 10 births in private hospital are currently cesarean deliveries

It’s not a well-known fact, but Brazil is the C-section capital of the world: 85% of all deliveries in the country’s private hospitals are done by cesarean section, and 45% of births in public hospitals.

Now, Brazil is attempting to reverse the trend with rules introduced Tuesday that require doctors to inform expectant mothers of the risks that accompany having a C-section. A woman who chooses a C-section must sign a consent form prior to the procedure. Her doctor must also sign a form justifying the C-section.

The law is aimed at reducing the number of unnecessary C-sections that have been criticized for their negative health consequences; many wealthier women opt for cesarean births for their speed and predictability.

But the issue driving the rate of C-sections in Brazilian maternity wards may in fact be a low bed count. The scarcity of beds, combined with hospitals ill-equipped to deal with natural births that can be unpredictable, is likely to keep the method of delivery popular.

“The best way to guarantee yourself a bed in a good hospital is to book a cesarean,” Pedro Octavio de Britto Pereira, an obstetrician and professor with the Federal University of Rio de Janeiro, told the BBC last year.

[BBC]

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