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Brazil's Economy Chugs On, But Debt Worries Start To Surface

The Santander Brasil headquarters in São Paulo
The Santander Brasil headquarters in São Paulo
Sérgio Siscaro, Paula Pacheco and Carlos Tromben

RIO DE JANEIRO - Felsberg Abogados' studies of business law in Brazil are not only well-respected, but are often seen as a very real barometer of the health of the country’s economy. And Thomas Felsberg, the company’s founder, has been observing a unsettling trend since July: a steady increase in the number of companies seeking legal advice regarding problems with debt.

Felsberg says that these enterprises are “small, medium-sized, large and very large companies that are having difficulties and want to renegotiate with their creditors.” He says that the industry most affected at the moment are sugar and alcohol refineries, due to drops in the prices of the raw materials.

But already in July, the International Monetary Fund (IMF) released a report entitled Brazil: Analysis of the Stability of the Financial System, which warns of both internal and external risks. The report notes how the accelerated expansion of credit in the last few years has supported internal economic growth, but has also left the entire system vulnerable to a national debt crisis.

How bad is the situation? The consulting firm Serasa Experian has shown that the number of checks returned for insufficient funds has increased by 11.4 percent in the first seven months of this year, compared with last year.

Still, Ricardo Louriero, Serasa Experian’s president in Brazil, is not as worried. “We have had worse problems with debt delinquency in the past. We saw increasing amounts of late debt payments up until July, but in July it turned around,” Louriero said. He also said he does not think Brazil is experiencing a bubble, as some people have suggested.

Rodrigo Zeidan, a professor of economics and finance at the Dom Cabral foundation, has also said there is no reason for alarm, since Brazil’s debt to GDP ratio is relatively low.

On Defense

However, the IMF’s report said that Brazilian families are giving 23% of their incomes to service debt -- a proportion that is high compared to the rest of the region.
According to the report, debt service during an economic downturn can lead to stress for some households, which is already the case in Brazil.

Marcial Portela, president of the Santander bank in Brazil, has also recognized at a conference recently that “late debt payments in the last four trimesters have increased to a level that is not normal.”

The response from many banks has been increasingly strict conditions for repayment and credit requirements from clients. On the other hand, other observers are warning banks that using an iron fist and lawsuits is not a viable solution for turning things around. They recommend that the banks try to find an agreement with clients who are behind on their mortgages. Some banks have, in fact, tried to lower interest rates through refinancing for clients who are in trouble.

In fact, one of the problems are the interest rates in Brazil, which are still among the highest in Latin America, and among developing countries. According to the World Bank, in 2011 the real interest rate in Brazil rose to 34.5%, nearly three times that of Peru, the second-highest in the region.

According to the IMF, the reason for Brazil’s high interest rates is the country’s low savings rate. According to the IMF’s report, if Brazil’s savings rate rose to the levels seen in Mexico, the difference between Brazil’s interest rate and others in the region would likely be cut in half.

But not everyone in Brazil is concerned by the evidence that debt delinquency is increasing. Dorival Dourado, president of the credit agency Boa Vista Servicios, says he is currently holding less delinquent debt this year than last. “The country has full employment and people’s understanding of how to use credit is getting better and better," Dourado said. "The middle class will continue to live in paradise.”

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First It Was Poland's Farmers — Now Truckers Are Protesting Ukraine's Special Status

For the past month, Poland has been blocking off its border checkpoints to Ukrainian trucks, leaving many in days-long lines. It's a commercial and economic showdown, but it's about much more.

Photogrqph of a line of trucks queued in the  Korczowa - border crossing​

November 27, 2023, Medyka: Trucks stand in a queue to cross the border in Korczowa as Polish farmers strike and block truck transport in Korczowa - border crossing

Dominika Zarzycka/ZUMA
Katarzyna Skiba

Since November 6, Polish truckers have blocked border crossing points with Ukraine, citing unfair advantages given to the Ukrainian market, and demanding greater support from the European Union.

With lines that now stretch for up to 40 kilometers (25 miles), thousands of Ukrainian truckers must now wait an average of about four days in ever colder weather to cross the border, sometimes with the help of the Polish police. At least two Ukrainian truck drivers have died while waiting for passage into Poland.

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The round-the-clock blockade is being manned by Polish trucking unions who claim that Ukrainian trucking companies, which offer a cheaper rate, have been transporting goods across Europe, rather than between Poland and Ukraine. Since the beginning of Russia’s invasion, Ukrainian truckers have been exempt from the permits once required to cross the border.

Now, Polish truckers are demanding that their government reintroduce entry permits for Ukrainian lorries, with exceptions for military and humanitarian aid from Europe. For the moment, those trucks are being let through the blockade, which currently affects four out of Ukraine’s eight border crossings with Poland.

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