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Brazil President Jair Bolsonaro with his new Petrobras CEO, Joaquim Silva e Luna, in an archived photo from January last year. (Photo: José Cruz/Agência Brasil)
Wednesday, February 24, 2021
Analysis

Bolsonaro Threatens Petrobras, Brazil Recovery


Impressive turnaround process at Brazil’s state oil giant now in doubt.

BY JOACHIM BAMRUD

Two years ago, Brazilian and foreign investors alike were bullish on the outlook for Latin America’s largest economy.

Jair Bolsonaro, a controversial populist, had assumed Brazil’s presidency in January 2019 and named a business-friendly cabinet led by Economy Minister Paulo Guedes. Just as important, many of the people he named to head state entities like oil giant Petrobras were well-respected and popular choices among investors.

Fast forward to today. After two erratic years as president, Bolsonaro shocks investors by ousting Roberto Castello Branco, the CEO of Petrobras, over a dispute of fuel prices.  After announcing the move late Friday, Petrobras lost a whopping $13 billion in market capitalization Monday. That followed Friday’s losses of $5.2 billion on speculation that Bolsonaro would fire Castello Branco.

Making matters worse, Bolsonaro signaled further meddling in the electricity sector.

“Just as I said they wanted to bring me down in the pandemic by closing the entire economy, now they’ve decided to attack me via energy,” he told supporters, according to a Reuters dispatch. “We’re going to stick our finger into the electric sector, which is another problem.”

As expected, shares in state electricity company Eletrobras fell.

Bolsonaro then decided to calm markets by moving ahead with a bill to privatize Eletrobras.

However, the damage was already done. He is no longer considered a reliable ally of the business sector, but instead seen as a populist who will do whatever possible to win re-election next year, even at the cost of Brazil’s business climate in general and Petrobras specifically.

PETROBRAS

Petrobras, which tops the Latinvex 500 ranking of Latin America’s largest companies, has undergone an impressive turnaround the past five years after years of corruption and an overwhelming debt load.

Both Pedro Parente (who led the firm from 2016 to 2018) and Castello Branco (CEO since January 2019) implemented aggressive debt-reduction policies and brought professional management to the company, following the free-spending, corruption-laden years under Sergio Gabrielli (2005-2012).  

Now, not only has Bolsonaro meddled in an internal Petrobras affair and fired its well-respected CEO, but also named an unqualified successor – general Joaquim Silva e Lunawho lacks the relevant experience and is likely to manage the state company in close coordination with Bolsonaro’s political wishes rather than market foundations.

Bolsonaro’s meddling in Petrobras was reminiscent of the previous government of Dilma Rousseff and not at all what the business community had expected. In 2011, Rousseff shocked investors by firing the well-respected CEO of miner Vale, Roger Agnelli over a policy dispute.

In fact, after Bolsonaro’s earlier attempt at meddling in Petrobras – in April 2019 – he backtracked after widespread criticism. "I cannot and I will not interfere in Petrobras," Bolsonaro said in a statement at the time.

EXODUS

As bad as it is, the firing of Castello Branco is not an isolated case of irrational behavior by Bolsonaro.

Sergio Moro, the widely-respected judge who led the Car Wash prosecution of corrupt politicians and businessmen, resigned as Bolsonaro’s justice minister in April last year after accusing the Brazilian president of meddling in a probe of his family.

Joaquim Levy, a former finance minister who was named head of the Brazilian development bank BNDES by Bolsonaro, resigned in June 2019 after the Brazilian president had threatened to fire him over a hiring issue.

This year started with news that Bolsonaro wanted to fire André Brandão, the president of the state bank Banco do Brasil, after he launched a plan to close 361 branches and an employee buyout program, according to Reuters.

Central Bank chief Roberto Campos Neto convinced Bolsonaro to keep on Brandão, arguing that firing him would send a bad signal to markets of political meddling in a publicly-traded company, InfoMoney reported.

Now, speculation is stronger than ever that Guedes is next. The firing of Castello Branco was seen as a clear sign that Bolsonaro no longer lets the Economy Minister decide economic policy.

ECONOMIC RECOVERY, IPO BOOM

Bolsonaro’s move against Petrobras comes just as the economy was still in recovery mode and in need of foreign investment.

It also came as Brazil has been seeing an unexpected boom in initial public offers by local companies. After seeing 28 offers raising a combined $9 billion last year, the first two months of the year saw an even stronger performance, with 17 offers raising a total of $4.5 billion, according to Latinvex data. The market volatility around the Petrobras move may slow down what was expected to be a particularly strong year for capital markets.

As businesses have been disappointed in developments in Mexico and Argentina – Latin America’s other top economies – Brazil had provided a clear bright spot.

Now, Bolsonaro’s unpredictable populism is again threatening Brazil’s economic recovery and providing an unwelcome dark cloud for investors.


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