Groundhog Day in Brazil

No, this is Barcelona airport (and yes, it is in operation)

I came back from Spain last weekend and came through two airports there: Palma and Barcelona. Both are huge and whereas Palma is a bit old, it is still fairly efficient and even sports valet parking. Barcelona by contrast is a modern, efficient and great airport to fly into and out of or to connect through: Transit is fast, waiting times short, with a great shopping area and a pretty good Spanair lounge.

Then I flew into Guarulhos and noticed how much there still is to do...But the airport claims to be ready for the world cup, with a MOP (Modulo Operacional Provisiorio, i.e. a provisional terminal). I was also "lucky" to experience this MOP on a business trip this week: Whoever has flown through many of these RyanAir airports in Europe will be able to picture this well: A very simple structure with many chairs and a small counter which sells semblances of food - if you are willing to fork out 3.00USD for a bottle of water - has the charm of a bus station. Oh yes, my flight also left late and came back late the next day... And I also did not find a parking space, I did what everybody does. As there is no alternative and the generous 3000 spaces are never enough...

What else is new this week?

• The minister of tourism quit after allegations of corruption - that is number 5 this year. The new minister (also from the PMDB) has named his number one priority getting ready for the world cup. Sounds like Groundhog Day to me.
• A new hobby of thieves, blowing up ATMs, seems to be catching on. This week, the 500th (yes, five hundred) ATM was blown up trying to get some easy money. Unfortunately for the culprits, the money was tainted with special ink, as is the case of most ATM if they are tampered with. The Civil Police is searching chemical industries in the whole region for possible losses of chemical products used to make explosives... 500 ATM, that is alot of explosive in just 9 months...
• Inflation is expected to hit around 7.5% this year, and GDP growth should not surpass 3.5%
• The USD hit a 12-month high vs the BRL - this will help exports and possibly slow down some speculative capital inflows
• To protect the Brazilian car industry, the government has increased the IPI (a tax) for small cars with no Brazilian components to 35% (up from 7%)
• Construction Workers at the 2014 World Cup Stadiums in Rio and Belo Horizonte have been on strike (B.H. sind this week, Rio since September 1)

Looks like the last couple months will not be boring. ;-)

UPDATE 17.09.2011: According to the Infraero website, the MOP in Guarulhos is not temporary, but can be used "for a very long time, if required".

Linklist of the week

For lack of time to actually write something, at least my latest reading list:

• Website focusing on infrastructure investments for the world cup: http://www.copa2014.org.br/en/infrastructure/
• Should you speak some Portuguese, 20% salary increases in a year in many professional categories. Nice article in Exame: http://exame.abril.com.br/carreira/noticias/salarios-aumentam-mais-de-20-em-um-ano-diz-robert-half
• Brazil still is not the berth of intellectualism. The JiaoTong University has released it's latest ranking and Brazil is not in the top 100: http://www.arwu.org/index.jsp (The top 20 contain two British, one Japanese and 17 US Universities)
  

Difficult to Digest Big Mac

Source: The Economist

The Economist released its latest Big Mac Index Study last weekend and, at least for those in Brazil or with very intensive contact to Brazil, the result is not a surprise. The Big Mac Index, according to the newspaper can be described as follows:

Burgernomics is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries.

If we apply this to Brazil and look at the chart above, we will see that according to this index, the BRL is overvalued against the USD by ca. 50%. Now this is fairly imprecise, as the Index does not show the relationship to GDP per person. The Economist recognized this and adjusted for GDP per person... and now the BRL seems even more overvalued...

Now I did study economics and although I have been outside of my field for quite a while, I believe that such a strong disconnect (BTW, also for Argentina) implies four things:

1. The Big Mac Index is flawed (not likely),
2. the Brazilian average GDP is set to rise to the level of the USA in a short timeframe (desireable but not likely), or
3. that the BRL is in for a huge devaluation...
4. or inflation within the next few months.

There is of course a further possibility: That the current scenario simply shows a temporary disconnect of several economic factors caused by fear of a destabilization of US and European economies, that several countries are threatened by defaults or at least rating downgrades and a flight to "safe harbors", such as Brazil is occuring.

I find it hard to believe that any of the four... five factors can explain the current scenario - but given the size of the gap I believe we are in for one severe indigestion.

World Cup Troubles

Let Us Hope there are no second thoughts about this

To make it quick: The 2014 World Cup is in trouble. A report to be released these days (today?) will put a green light on the stadium construction of Belo Horizonte. Full Stop. All other stadiums will receive a yellow light for progress - except for Natal and São Paulo, where construction hasn't even begun. To be honest, I still do not know where and how the São Paulo stadium should be built.

The second part of the bad news is that almost all infrastructure to support the world cup (airports, roads, subway, etc.) will receive at least a yellow light. The "grand plan" for São Paulo is expected to be to block all access roads to and from stadiums and major hotel districts to allow soccer fans to get to and from the games - killing off the rest of the city.

The third part of the bad news is that, contrary to initial official news, almost no private money will be used for infrastructure and stadium construction. The required money is estimated to be a total of ca. 10 billion Euros, of which 7.2 billion Euros alone are for airport infrastructure projects. The available 147m EUR from the private sector are from soccer clubs used to build or refurbish their own stadiums. In other words, the tax payer will pay for 98.5% of the cost. Good job.

The fourth part of the bad news is that the world cup will be in roughly 1200 days.

The fifth and final part is that at least six stadiums with infrastructure need to be ready in 835 days - for the confederations cup...

EDIT AND UPDATE: Since last year, costs for stadium construction have already gone up, on average, by 57% according to AFP. Top cost increases were registered in Salvador, at 170%.

Cooked Inflation

Everybody in South America talks about the understated inflation in Argentina. The government claims it to be 10%, but it most likely is 20+%...

Now I have seen life in Sao Paulo get more expensive over the past months. My unrepresentative list goes like this:

- Club Monthly Fees: 13.6%
- Picanha at my grocer: 45%
- Taxi fare: +28%
- Milk: +8%
- Private School: +12%
- Real estate: Do not even mention it...

Official inflation is only aroung 5-6% but prices have been creeping up beyond, mostly food - possibly a bi-product of commodity inflation. Official numbers are not confirmed at the levels above... yet. With commodity prices soaring all around the world, more is likely to come, but I am worried that there may be much more already here in the country.

My fears have been "confirmed" with two pieces of news I came across recently: This week's Veja magazine, which is running a (non-representative and somewhat populist) special and The Economist, which has compiled a Big Mac implied inflation index. This index puts inflation in Brazil at n+4%, so more around 10%... Keep your eyes and ears open.

EDIT: Where you look, more news. Here from the Brazil Institute.

Bring us your money!

11.25%

The Brazilian Central Bank raised the interest rate by 0.5% to 11.25% in yesterday's meeting. This puts the government in a difficult situation: They raised inflow taxes, then they twisted December numbers to make borrowing more expensive without raising interest, but now had to do someting.

Brazil continues with the highest real interest rate in the world, at 5.5%. Second place is... Australia, with a mere 1.9%.

And the analyst buzz is that interest rates will continue climbing, peaking around 12.25% at year end. I smell inflation:

For Portuguese-Readers: http://economia.estadao.com.br/noticias/not_51686.htm