Brazil's Energy Minister Edison Lobao reportedly stated recently that the country needs to raise fuel prices, although a formal decision has yet to be made. In June the state-run fuel company Petrobas (NYSE: PBR) raised prices for diesel and gasoline. In July it raised prices for diesel again. These raises were in an effort to fund its $237 billion investment plan that runs through 2016. Higher costs of imported fuel and the weakness in Brazil's currency led to Petrobas' first quarterly loss in 13 years for the second quarter. Analysts were expecting a profit as opposed to the $667 billion loss. Domestic output fell 2.4% year over year as Petrobas conducted maintenance work and closed some wells. The price increases are expected to bring Petrobas back into profitability.
Brazilian stocks took a tumble this past Thursday and equities pushed toward their third consecutive loss. The Ibovespa Index (BVSP) fell 1.8%, bringing it to a loss of 14% this month. It is not at its lowest level since October. In addition, Vale S.A. (NYSE: VALE), Petrobas (NYSE: PBR), and Banco Santander Brasil S.A. (NYSE: BSBR) experienced declines. Vale fell by 1.1%, Petrobas fell by 2.2%, and Banco Santander fell by 7%. This was Banco Santander's first loss in five sessions. In addition to stocks declining, the Real pared losses against the U.S. dollar.
Brazil has been spending a lot of money on infrastructure in recent years. It has also been busy cleaning up the slums in Rio de Janeiro. Police and military personnel have been moving in to take control while the cartels have been slipping away in the middle of the night. They are also working diligently to bring electricity and sewer systems into these neighborhoods, elevating the living situation for the hundreds of thousands that call the favelas home. Brazil is also rich in land, resources, and labor. It has a great advantage in trade as well.
The announcement to bring the 2016 Olympics to Rio de Janeiro, Brazil, has brought about big changes in the area’s slums, or favelas. The police have been working with special forces commandos to regain control of these heavy trafficking areas. The commandos move in to clear it out and the police come in and set up base. They are also bringing in health care and electricity to these areas. The residents are happy to see these changes and the traffickers are on the run. Positive things are happening in Brazil. Just this past week they took over one of Rio’s largest slums and also arrested one of the most wanted drug traffickers in the process. Perhaps the most surprising part of this story was a policeman turning down a 6 figure bribe. Now that is progress. Everything appears to be on the way up for Brazil. They are making all of the changes necessary to be taken seriously by the outside world. With electricity being brought into the slums that were once untouched, this would be a wonderful time to invest in Brazil’s infrastructure.