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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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In Northern Kenya, Where Climate Change Is Measured In Starving Children

The worst drought in 40 years, which has deepened from the effects of climate change, is hitting the young the hardest around the Horn of Africa. A close-up look at the victims, and attempts to save lives and limit lasting effects on an already fragile region in Kenya.

Photo of five mothers holding their malnourished children

At feeding time, nurses and aides encourage mothers to socialize their children and stimulate them to eat.

Georgina Gustin

KAKUMA — The words "Stabilization Ward" are painted in uneven black letters above the entrance, but everyone in this massive refugee camp in Kakuma, Kenya, calls it ya maziwa: The place of milk.

Rescue workers and doctors, mothers and fathers, have carried hundreds of starving children through the doors of this one-room hospital wing, which is sometimes so crowded that babies and toddlers have to share beds. A pediatric unit is only a few steps away, but malnourished children don’t go there. They need special care, and even that doesn’t always save them.

In an office of the International Rescue Committee nearby, Vincent Opinya sits behind a desk with figures on dry-erase boards and a map of the camp on the walls around him. “We’ve lost 45 children this year due to malnutrition,” he says, juggling emergencies, phone calls, and texts. “We’re seeing a significant increase in malnutrition cases as a result of the drought — the worst we’ve faced in 40 years.”

From January to June, the ward experienced an 800 percent rise in admissions of children under 5 who needed treatment for malnourishment — a surge that aid groups blame mostly on a climate change-fueled drought that has turned the region into a parched barren.

Opinya, the nutrition manager for the IRC here, has had to rattle off these statistics many times, but the reality of the numbers is starting to crack his professional armor. “It’s a very sad situation,” he says, wearily. And he believes it will only get worse. A third year of drought is likely on the way.

More children may die. But millions will survive malnutrition and hunger only to live through a compromised future, researchers say. The longer-term health effects of this drought — weakened immune systems, developmental problems — will persist for a generation or more, with consequences that will cascade into communities and societies for decades.

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