Announced debt crisis – 04/16/2023 – Marcos de Vasconcellos

The director general of the IMF (International Monetary Fund), Kristalina Georgieva, warned this week of one of the problems of widespread high interest rates (which are not exclusive to us): poor countries are entering a debt crisis.

It’s not just any debt, it’s with the IMF. Something like 20 years ago, the negotiation of the debts of Brazil and so many other countries with the international body was in the news.

Kristalina said that, with the local interest rate increases, 15% of low-income countries have already entered a debt crisis — that is, they will not be able to pay as planned. And the number could rise to 45% of those nations, she said. Will we be among them? It is not known yet, but the warning is given.

Despite the difficulty in equalizing interest rates, the IMF director believes that they are still necessary, in a global view, to control inflation. Her main suggestion is to renegotiate.

Attempts to calibrate “the price of money” have brought some good opportunities for investors. I explain next.

The IMF warning is more firewood for the clash over the possible reduction of our basic interest rate (Selic). The deceleration of official inflation (IPCA) in March gave another little push. As I have already said here, the numbers and projections need to reach the Central Bank bureaucracy. It’s not enough to just want to.

Downward pressure is mounting in the private sector. In the view of a mega-entrepreneur, controller of some companies that are well known to investors, with whom I spoke recently, interest rates are wrong, suffocating growth in the name of an unrealistic inflation target for our standards.

The billionaire, who knows inside different sectors and operations of multinationals, makes an interesting provocation: “Anyone talking about China’s inflation target?”

It is true that when talking about China, the number that comes to mind is GDP (Gross Domestic Product) growth. Officially, by the way, inflation there in 2022 was 2%. The target is around 3%. Being below it turns on a yellow light, because it means that demand is low. The prime interest rate there is 3.65% for one-year loans and 4.3% for five-year loans.

Still, the Chinese government has set a GDP growth target of 5% this year. Economists expect even a little more than that. Ours, on the other hand, should rise 0.91% by the end of 2023, according to the most recent forecasts compiled by the Central Bank, in the Focus Bulletin.

With high interest rates and little growth prospects, lending money remains a good business. Not just for banks, but for people like us. I’m talking about so-called fixed income securities. JP Morgan announced that it expects double-digit returns later this year on bonds in emerging countries.

More specifically, bonds from Brazil, Indonesia and Mexico are in the bank’s sights, according to Bloomberg. They are places where central banks “have acted decisively and offered positive real interest rates”.

In addition to government bonds, there are good opportunities in those issued by companies. High interest rates had already made it harder for companies to get credit. the case

das Americanas brought even more difficulties in negotiating with the banks. As a result, the premiums for those willing to lend became higher.

Three giants on the stock exchange are offering attractive fixed-income securities, offering as a return the IPCA variation in the period plus rates ranging from 6.2% to 6.7%: the mega fridge Minerva, the oil company Prio (formerly PetroRio ), and the second largest fuel distributor in the country, Raízen.

The three are at the top of rankings by risk assessment agencies, such as S&P and Fitch, with AAA or AA ratings.

These are interesting bets, even thinking about the possibility of reducing interest rates. If they really fall, this type of paper becomes worth more in the so-called secondary market and it is possible to make good money without waiting for the expected maturity, which ranges from 2029 to 2037, in the examples I cited.

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