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Invest in Brazil – weekly news update

Even though it is a controversial project, the hydroelectric dam to be built in the Amazon rain forest is expected top rack in returns of more than 10 percent. The dam to be constructed by Electrobas, Brazil's state -controlled power utility, together with other construction companies in the country won the tender for the construction of this 11,000 megawatt dam that is already controversial. Financial analysts said that the government had set artificially low prices for the power to be generated by the dam, adding that the dam faces considerable risks including cost overruns and the probability that protests will most often halt its construction. There is an expected 10% investment return on the project with official estimates pegging construction costs at 19 billion Reals, about $10.5 billion even though the private sector puts the estimates at highs of 30 billion Reals, about $16.6 billion.

 

Brazil's government is expected to cut its 2010 budget by 10 billion Reals in its quest to prevent overheating in the Brazilian economy. This was announced by the Finance Minister in preparation for the meeting with the Budget and Planning Minister that will decide the final figure. However, the Finance put the estimate at close to 10 billion Reals. The Finance Minister added that the Euro Zone crisis will not affect growth in Brazil in 2010 because it will take relatively longer for exports to Europe to grow but it will definitely impact the exports. Brazil would have to wait for a long time before increasing exports to Europe as European markets witness a slowed recovery. World markets have been volatile in recent weeks over fears that the Greek crisis might spill over to other European countries. However, with the austerity plans already underway, there was accelerated selling on Thursday last week across most markets, the Brazilian market included, after the announcements by the European central bank that it had not considered buying government bonds to ease the Greece's debt crisis.

 

Local Brazilian economists are however hopeful that the Brazilian economy will expand by 6.06% this year. The further Minister further asked the US to raise interest rates and allow appreciation of the US dollar as a way of dealing with the global economic crisis. The government plans to implement budget cuts to halt an expansion rapidity that has stoked inflation in Brazil, Latin America's biggest economy. A further 21.5 billion Reals had been cut off the budget in March and as a result, the overall budget cuts will be equivalent to 1% of gross domestic product. Investors have pushed yields on interest rates futures higher in recent weeks on expectations that the Brazilian economy may be growing too fast.

 

15 May 2010