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July 15, 2013

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INDEX

ECONOMY&BUSINESSTHE WALL STREET JOURNAL

ENERGYJOURNAL:SHALE SHAKINGALL OVER BRAZIL'S REAL OPENS LITTLE CHANGEDAFTERCHINA GDPFIGURES

REUTERS BRAZILIAN COMPANIES ABLE TO STOMACH WEAKERFX RATE -BNDES CHIEF BRAZIL'S BNDES CHANGED LOAN TERMS TO HELP BATISTA'S EBX-REPORT BP TAKES ON MORE BRAZILIAN OFFSHORE ACREAGE

BLOOMBERG IBOVESPA FUTURES RISEAMID BETS BRAZIL TO LIMIT RATE INCREASES BRAZIL SWAP RATES DROP AS ECONOMISTS CUT GDPOUTLOOK;REAL GAINS

POLITICSTHE NEWYORKTIMES

BRAZILS PLAN ISNT WHAT DOCTORS WOULD ORDEROTHERISSUESTHE WASHINGTON POST

BRAZILIANS ACCUSE POLICE OF BRUTALITY AS IMAGES OF TACTICS DURING PROTESTS FLOODSOCIAL MEDIA

THE WALL STREET JOURNAL AS CRIME RATTLES BRAZIL,KILLINGS BYPOLICE TURN ROUTINE

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Economy & Business

The Wall Street Journal

Energy Journal: Shale Shaking All Over

SHALE: SWARM MEANS SHAKES

The shale boom, the bright hope of the energy industry, has spawned its own language.Fracking, unconventional revolution, fugitive emissions and energy independence,have all entered the popular lexicon in the past few years.

To this, add swarming.

New seismological research suggests that increased activity at natural-gas wells has causednumerous earthquakes in the U.S., Nature reports. It isnt the fracking process itself; but thedisposal of wastewater by re-injecting it into adjacent rock may be lubricating pre-existingfault lines.

Thus, large earthquakes in distant, tremor-susceptible lands such as Chile or Sumatra could

trigger a seismic swarm,resulting in small, locally produced tremors some months later.This research isnt proof of anythingstudies into the effect of shale exploration, much likethe industry itself, are in their infancy.

Differing theories are being posited. Just this year U.K. research found that while frackingcan cause seismic activity, it releases about the same amount of energy as someonejumping off a ladder onto the floor.

Fracking was subject to an enforced hiatus in the U.K. after tremors were felt near a testwell site. Last week the government there said it would begin a public awarenesscampaign to dispel what it called the myths surrounding the process.

That research also found cause for concern with the re-injection of wastewater, andexpressed fears over the integrity of well bores.

Add to this worries that shale production is in effect a short-term bubble, and perhaps thefuture isnt looking so bright after all.

EURO RENEWABLES MEET ECONOMIC REALITIES

Europes renewable energy industry is falling victim to the regions economic woes. InSpain, subsidy cuts are looming as the under-pressure government attempts to balance thebooks, The Wall Street Journals Ilan Brat reports.

The FT says the investment case for Spanish utilities has all but vanished. Spain gambled onrenewables in the boom years, and is feeling the consequences now times are lean.

The costs of renewables are in the returns guaranteed for the investor. The London Arraythe worlds largest offshore wind farm that was opened last weekis something of a subsidypit, the Daily Telegraph reports before allowing a right of reply to the projects manager.

The risk-reward argument isnt just being felt in Europes hard-hit south. The regionseconomic powerhouse, Germany, is also divided over the cost of a planned completetransition to renewable energy. There, the debate, Time explains, has shifted from how dowe get this done? to how can we afford this?

BRAZIL HOPES FOR BONANZA

An oil boom could be on the horizon in Brazil. Oil majors from around the globe are

beinginvited to bid for new blocks. Output at the largest of these, Libra, could peak at morethan 1 million barrels a day.

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Brazil is hoping the auction will lead to an influx of much-needed cash into an economy thathas been under pressure due to weak domestic activity. Social unrest in many parts of thecountry received world-wide attention this summer.

The hope is that terms on offer arent too onerous. The Brazilian government expects tocollect about 75% of all the eventual profits from development of Libra and other sites

deep offshore wells that are going to be expensive to develop.

MARKETS

Crude oil futures were very slightly down in London trading Monday, with few market signalsand slowing growth indicators from China.You can read the Journals market report here.

Brazil's Real Opens Little Changed After China GDP Figures

The Brazilian real opened little changed against the dollar Monday after Chinese grossdomestic product figures showed growth in Brazil's biggest trading partner slowed less thanfeared.

The real opened at BRL2.2628 to the dollar, according to Tullett Prebon via FactSet, afterexiting active trading at BRL2.2644 on Friday.

China's GDP grew 7.5% in the second quarter, easing from 7.7% growth in the first quarter,but in line with the median forecast of 18 economists surveyed by Dow Jones.

China is a major buyer of many Brazilian commodities including iron ore and soy beans, so aslowdown in growth in the Asian country has a direct effect on the Brazilian economy.

With the Chinese figures coming in as expected, investors are looking to other events thatwill move markets. On Wednesday and Thursday, U.S. Federal Reserve Chairman BenBernanke is set to testify to Congress.

"Markets are now expecting growth to slow in China, and we're adapting to that," said IlanSolot of Brown Brothers Harriman in London. "Now we're in a watching mode, waiting for abigger driver. The Bernanke testimony later this week will be a big event."

In Brazil, economists and analysts once again revised their forecasts downward for thecountry's economic expansion for 2013, due to weak performance of industrial activity,according to a weekly Brazilian central-bank survey released Monday.

The 100 respondents in the survey reduced their expectations for economic expansion thisyear to 2.31% from 2.34% in last week's survey. It was the ninth-consecutive forecastreduction for 2013. For the next year, they maintained the growth outlook at 2.80%.

In the meantime, survey respondents reduced slightly their inflation view for the end of thisyear to 5.8% from 5.81%. For the end of 2014, economists and analysts maintained theirview for inflation at 5.90%.

Reuters

Brazilian companies able to stomach weaker FX rate - BNDES chief

Brazilian companies are able to withstand a slightly weaker exchange rate without the samecurrency problems they suffered five years ago, the head of the BNDES development banksaid in an interview published on Sunday.

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Luciano Coutinho said stress tests made by the state-owned bank showed Brazilian firmscan absorb the impact of an exchange rate of 2.3 reais per dollar by the end of the year, butthat managing inflation pressures stemming from a weaker currency would be a challenge.

"I'm not projecting that exchange rate (by the end of the year) as this was only a stresstest," Coutinho told Folha de S.Paulo daily. But "this is different from what happened in

2008, when companies incurred heavy losses due to (their exposure to) currencyderivatives."

Many Brazilian companies were caught off guard in 2008 when the real lost about one-thirdof its value in a two-month period around the collapse of Lehman Brothers.

Companies such as pulp producer Aracruz Celulose, meat processor Sadia and industrialconglomerate Votorantim Group lost billions of dollars due to bad currency bets in thederivatives market. Others suffered with growing debt costs from dollar-denominatedobligations.

The real has weakened nearly 15 percent since hitting 1.95 per dollar in the beginning ofMarch, its strongest level this year, as investors worried about the end of U.S. stimulusmeasures that for years have fueled appetite for emerging market assets.

The real closed at 2.2655 on Friday, which means it would have to weaken less than 2percent to hit the 2.3-per-dollar level mentioned by Coutinho.

However the government faces a "challenge," Coutinho said, as it tries to manage theinflationary impact of a weaker real, which boosts the prices of imported goods.

"It is imperative to keep inflation under control. That is a government directive," he said.

Coutinho acknowledged the Brazilian economy had a weak first quarter as investorsadjusted to an expected withdrawal of U.S. stimulus measures and to higher interest ratesdomestically.

He said economic growth rates will recover in the medium to long term following a period of"adjustment," and pointed to investment opportunities in several industrial andinfrastructure sectors that will benefit from a weaker currency.

Disappointed by recent economic data, analysts have been revising down their growthestimates for Brazil. Many banks already forecast the economy will expand less than 2percent this year, after growing only 0.9 percent in 2012.

Brazil's BNDES changed loan terms to help Batista's EBX -report

Brazilian state-run development bank BNDES changed the terms of loan contracts with

billionaire Eike Batista's Grupo EBX, stretching out payments and easing requests forguarantees at the expense of profitability, daily newspaper O Estado de S. Paulo said onMonday, citing documents provided by a lower house lawmaker.

Between January 2009 and December 2012, BNDES committed 10.7 billion reais ($4.7billion) in credit to EBX, a mining, energy and logistics conglomerate, Estado said, citing thedocuments. The bank offered the loan contracts at below-market interest rates and askedfor collateral such as company stock or goods that had not been bought yet, the paperadded.

Most of the loans extended to the EBX companies, many of them listed in the So PauloStock Exchange, will not mature until the next decade, Estado said, citing the documents.

Rio de Janeiro-based BNDES is Brazil's only source of long-term loans for the nation'scompanies.

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Calls to the mobile and office phones of three spokespeople at BNDES were not immediatelyanswered. A spokeswoman for EBX in Rio de Janeiro was not immediately available tocomment on the Estado report.

According to Estado's calculations, BNDES may book as much as 462 million reais in losses ifit decides now to unwind two transactions allowing MPX Energia SA to replace debt with

equity. Batista recently sold control of MPX Energia to Germany's E.ON SE.

"The government needs to explain the profit the country obtained with all thesetransactions," said lower house lawmaker Cesar Colnago, who asked the BNDES for detailedinformation on its dealings with Batista's EBX a few months ago. "They looklike business dealings made between a father and his son."

Colnago is a lawmaker with the opposition Brazilian Social Democracy Party, known asPSDB.

Earlier this month, BNDES said current loan commitments to EBX totaled 10.4 billion reais,but would not say how much of that amount has been disbursed, citing the need topreserve banking secrecy rules in Brazil.

BP takes on more Brazilian offshore acreage

British oil company BP PLC said on Monday it would farm in to five deepwater explorationand production concessions operated by state-owned Petrobras in the Potiguar Basin,expanding itsBrazilian offshore presence.

Subject to regulatory approvals, BP Energy do Brasil Ltda. will take a 30 percent interest inblocks POT-M-663, and POT-M-760 (contract BM-POT-16), and a 40 percent interest inblocks POT-M-665, POT-M-853 and POT-M-855 (contract BM-POT-17). Together theseblocks cover a total area of 3,837 square kilometres, BP said.

It did not give any financial details.

Bloomberg

Ibovespa Futures Rise Amid Bets Brazil to Limit Rate Increases

Ibovespa futures advanced as a central bank survey that showed economists cut Brazil sgrowth forecasts for this year led traders to pare bets on higher borrowing costs, boostingthe outlook for consumer stocks.

Steelmaker Usinas Siderurgicas de Minas Gerais SA may be active after Credit Suisse Group

AG raised its recommendation to the equivalent of buy. Securities depository Cetip SA(CTIP3) - Mercados Organizados may move after naming Gilson Finkelsztain chief executiveofficer.

Ibovespa futures contracts expiring in August climbed 0.4 percent to 45,390 at 9:38 a.m. inSao Paulo after earlier falling as much as 0.4 percent. The real strengthened 0.2 percent to2.2635 per dollar.

Brazilian swap rates, a gauge of expectations for interest-rate moves, dropped on mostcontracts after a central bank survey showed economists covering Latin Americas largesteconomy cut the median forecast for 2013 growth to 2.31 percent from 2.34 percent.

The economic activity indicators recently released do not point to a strong recovery in

domestic activity in the past few months, Credit Suisse Group AGs analysts including NilsonTeixeira wrote in a note to clients.

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The Standard & Poors GSCI index of 24 raw materials fell 0.6 percent after datashowedChinas gross domestic product rose 7.5 percent in the second quarter from a yearearlier, compared with the prior 7.7 percent increase.

The Ibovespa has slumped 23 percent year to date, the biggest plunge among the top 20biggest equity markets tracked by Bloomberg. Brazils main equity gauge trades at 11.5

times analystsearnings estimates for the next four quarters, compared with 10.2 for theMSCIEmerging Markets Index of 21 developing nations equities.

Trading volume for stocks in Sao Paulo was 5.2 billion reais on July 12, which comparedwith a daily average of 7.83 billion reais this year through July 11, according todata compiled by the exchange.

Brazil Swap Rates Drop as Economists Cut GDP Outlook; Real Gains

Brazils swap rates fell after analysts cut their outlook for growth andChinaseconomy slowed for a second straight quarter, spurring speculation that the Latin American

nations central bank will limit increases in borrowing costs.Swap rates due in January 2016 declined six basis points, or 0.06 percentage point, to 10.41percent at 9:59 a.m. in Sao Paulo. The real appreciated 0.1 percent to 2.2650 per dollar.

Economists lowered their 2013 growth forecast to 2.31 percent from 2.34 percent a weekearlier, according to the median of about 100 estimates in a central bank survey publishedtoday. They cut their outlook for inflation to 5.80 percent from 5.81 percent.

There is a perception of slower inflation, Joao Junior, a fixed-income trader at ICAP BrasilDTVM, said in a telephone interview from Sao Paulo. The deceleration ofChina also helpsto influence the market.

Chinas statistics agency reported that the economy of Brazils biggest trade partnerexpanded 7.5 percent in the second quarter from a year earlier, down from 7.7 percent inthe first three months of the year.

Politics

The New York Times

Brazils Plan Isnt What Doctors Would Order

Every weekday morning dozens of government vans, ambulances and battered sedansmarked with the seals of towns across So Paulo State drop off their passengers at Santa

Casa Hospital and others in the metropolitan area.The drivers set out as early as 3 a.m. to transport residents of far-flung cities and townswho have waited months or sometimes years to see a specialist, have surgery or get a CTscan, services not available at their spare clinics back home.

On a recent day, Nilson Esteves, 32, traveled from rural Pedro de Toledo to pick up testresults; he has been waiting three years to have a benign tumor the size of a tennis ballremoved from his neck. Georgina Barbosa, a 70-year-old widow, came from Capivari afterwaiting three months to get treatment for bladder stones. If it was going to kill me, Id bedead already, she said.

Ms. Barbosa is painfully familiar with the perils and inadequacies of Brazils public health

system, a focal point of the protests that shook Brazil last month. Both of her sons died intheir 40s, one from a heart ailment and one from diabetes, and she lost vision in one eye

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during a recent operation. Her frustrations are reflected in a national pollfrom late June inwhich 48 percent of respondents said they thought health care was Brazils biggest problem.(Education was second at 13 percent.)

But President Dilma Rousseffs overall efforts to respond to the protesters concernshave disappointed many Brazilians, and her health care proposals have particularly

antagonized many of the countrys doctors. When Ms. Rousseff spoke to the nation duringthe protests, her main message about health care was that Brazil would bring in thousandsof foreign doctors to expand the care provided by the public health system. The outcryfrom Brazils medical establishment was immediate, including protests and talk of legalaction and strikes.

When she formally announced her plan last week, Ms. Rousseff hastened to clarify that herMore Doctors program would focus not on recruiting foreign doctors but on improving carein rural and underserved urban areas and increasing government spending on health care.Efforts would be made to fill openings with Brazilian doctors first, she said.

A dozen doctors interviewed across So Paulo last week, however, remained focused on the

issue of foreign doctors. Their almost unanimous conclusion: resources should be the toppriority.

What we have is not a lack of doctors but a lackof infrastructure and supplies that wouldallow for a better distribution of doctors where they are needed, said Dr. Jos Luiz Leo,45, a surgeon.

Dr. Leo started his career as the only doctor in So Joo do Araguaia, a town of 12,000 inthe Amazonian state of Par, but he left in frustration, he said, over the lack of equipmentfor even basic surgery and insufficient supplies of essential antibiotics.

He now oversees the Saturday shift at the public Antonio Giglio Municipal Hospital, inOsasco, a largely poor city of more than 700,000 that borders So Paulo to the west. His

working conditions have improved, but not much. The shabby emergency room andintensive care units, where doctors make as little as $25 an hour, are low on basic supplies.Patients often languish for days in the emergency unit, nearly naked and exposed withouthospital gowns or curtains.

Brazilians who can afford it pay for private care. When a former Osasco mayor, Celso Giglio,who built the hospital named for his father, was severely injured in a car accident, theambulance bypassed Osascos hospital and took him to Albert Einstein Hospital in So Paulo,a more costly, private institution. That prompted a flurry of morbid jokes from Osascoresidents.

The Health Ministry has defended the need for foreign doctors, noting that Brazil has fewer

doctors per capita than Argentina and Uruguay, and that the shortage is particularly severein the Amazon and northeastern states where many of the newly recruited doctors wouldgo. The ministry also said many countries, including the United States, regularly soughtto attract foreign doctors.

Not all doctors vehemently oppose the presidents plan. Dr. Antnio Augusto DallAgnolModesto, a family physician who works at a bustling public clinic in So Paulo, said thatwhile he found the idea of recruiting foreign doctors problematic, he did not like the way thephysicians organizations were making their argument.

You can be against Dilmas proposal, he said. But not just because the doctors are foreignnor because it is an emergency program, but because it was not tied to adequate long-termprojects.

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Dr. DallAgnol Modesto said Brazil needed more family doctors and general practitionersbecause patients swamped specialists with routine issues, increasing the wait for those withmore severe problems.

But rural clinics, the government argues, need any kind of doctor. So last Monday, when Ms.Rousseff unveiled her plan, she also announced that more medical schools would be

established to train thousands of new doctors. Also, their training will be extended to eightyears from six, adding a second cycle of two years during which students would work inpublic service posts. That could add up to 36,000 to the public health service by 2021.

The medical establishment again erupted in protest. Several organizations called the planquestionable, and the National Federation of Physicians described it as a form ofexploitation.

The Health Ministry said the measure was not a social service requirement but an importantelement of the students training and exposure to the realities of the health care system.We believe that it is important that Brazilian doctors are trained within the public system,much as they are in England or Switzerland, said Mozart Sales, the Health Ministry official

who will oversee the program.Dr. DallAgnol Modesto, the family doctor, said he was torn. Its been tried in othercountries, he said. It seems to be an opportunity. But on the other hand, its verydangerous to send recently graduated doctors to distant posts without resources.

Other Issues

The Washington Post

Brazilians accuse police of brutality as images of tactics during protestsflood social media

Leaning out from a balcony, Raissa Moitta Melo let loose a stream of expletives as shefilmed the chaotic scene playing out in the street below.

In the wobbly, cell-phone images that Melo later posted online, protesters are seenscattering as a formation of Rio de Janeiro police in riot gear approaches, firing whatappears to be rubber bullets in the crowds direction. The camera shakes as severalpercussion grenades explode with defeating blasts.

Police corralling demonstrators. No chance of escape, Melo wrote in comments thataccompanied the widely shared video, which she posted on her Facebook page. Surreal.Cowards. Disgusted.

All over this country, anger at police tactics has grown as law enforcement struggle tocontain a wave of protests that have been raging since last month. Dozens of police andprotesters have been injured in the sometimes violent demonstrations, with charges ofexcess violence lobbed against both sides.

The nationwide protests, in fact, started with outrage over the violent police response to asmall demonstration in the city of Sao Paulo over a 10-cent increase in bus and subwayfares. The movement quickly spread to hundreds of cities, becoming the biggest seen herein a generation. The discontent grew to encompass grievances ranging from governmentcorruption and high taxes to poor public schools and hospitals.

The protests have since tapered off, but several tens of thousands of people still attended

union-organized marches nationwide on Thursday after a daylong work slowdown.

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The Rio march quickly turned nasty, with skirmishes breaking out between police and smallgroups of demonstrators. Officers fired percussion grenades, pepper spray and other non-lethal weapons at people in densely populated neighborhoods. Dozens were chased anddetained in a square usually known for live music, and local media said police lobbed teargas canisters into a hospital.

Melo witnessed part of the Thursday protest. She didnt immediately respond to a requestfrom The Associated Press seeking additional comments about her post.

Amnesty International Brazils executive director Atila Roque, who also witnessed theThursday skirmishes in Rios Flamengo neighborhood, complained about the erratic andalmost irrational way the police acted.

Its clear that theyre out to hit the protesters personally, not just disperse them. Theyfollow them, corral them and make disproportionate and abusive use of tear gas and rubberbullets, said Roque.

Police officials say officers are merely responding to provocations by hooligans who use theprotests as cover to attack them and vandalize property. News coverage by Brazils majortelevision broadcasters have focused mostly on the young men, many with bare torsos andT-shirts wrapped around their heads obscuring their faces. They lob rocks and Molotovcocktails at police, smash storefronts and scrawl graffiti on buildings.

In one protest, a police officer barely escaped lynching by an angry mob that invaded theRio state legislature building, inflicting hundreds of thousands of dollars worth of damage.

Demonstrators, however, say theyve also come under attack by officers who make nodistinction between small groups of vandals and mostly peaceful protesters. Journalists andpassers-by say theyve also been targeted by police. One cameraman still runs the risk oflosing an eye after being hit by a rubber bullet during a protest in Sao Paulo.

Parents and children enjoying a sunny Sunday afternoon in a Rio park on June 16 foundthemselves engulfed in clouds of tear gas after police pursued demonstrators taking refugethere.

Four days later, hundreds of people leaving a demonstration that drew an estimated300,000 people in downtown Rio were chased by a half-dozen motorcycle officersdetonating percussion grenades. Officers entered open-air cafes where dozens of peoplehad taken refuge, shooting streams of pepper spray.

A day later, in the Amazonian city of Belem, a 51-year-old cleaning woman caught up in aclash between protesters and police died of cardiac arrest after inhaling tear gas.

After a handful of protesters shoved officers barricading Rios Maracana stadium, where the

June 30 final of the Confederations Cup soccer tournament was about to kick off, officersresponded with a barrage of percussion grenades and clouds of tear gas so dense that someBrazilian players said they felt its effects on the pitch.

Brazils police had already had a tainted reputation, with law enforcement-related killingsnumbering in the hundreds every year just in Rio de Janeiro state.

Officers are commonly accused of shaking down people to boost their meager salaries andforming armed militias as brutal as the drug trafficking gangs theyre supposed to combat.This year marks the 20th anniversary of several massacres carried out by police, includingone in which officers opened fire on dozens of street children sleeping around a Rio church,killing six minors and two adults.

Ruy Quintas, an economics professor at Rios respected Ibmec business school, said suchrough police tactics are a legacy of the 1964-1985 dictatorship that ruled Brazil.

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It is a military police force that is trained to use military tactics to protect the state, notcitizens, said Quintas. Their view of the citizenry is a very negative one.

Nine people were killed when police charged into Rios Nova Holanda slum hunting for thoseresponsible for the death of an officer slain during a violent protest. Another officer was alsokilled in the action.

Roque of Amnesty International blamed the government for not ordering police officers tomoderate their behavior.

Were missing a clear message from the command, from governors, from policecommanders that they are not going to tolerate that the police behave like vandals, saidRoque, whose organization recently published a pamphlet on best policing practices duringdemonstrations.

Rio Governor Sergio Cabral said Friday that any excess must be punished, while addingthat vandalism should not be seen as a normal thing anywhere in Brazil. President DilmaRousseff has lashed out repeatedly about vandalism, but has not addressed charges ofpolice brutality.

The state agency overseeing security in Rio insisted the polices use of non-lethal weaponsadhered to international norms established by the United Nations. In a statement Friday, theState Security Secretariat said officers have been receiving crowd control training since lastyear.

The agency said police intervened on Thursday to remove an illegal blockage in theroadway and guarantee the constitutional right to come and go of millions of people.Multiple calls seeking additional comment from the secretariat went unanswered Friday.

Melo said via Facebook that the polices behavior would push her and others back into thestreets.

Lets go to the streets once again, she wrote, and we wont stop while theres still thisgratuitous violence.

The Wall Street Journal

As Crime Rattles Brazil, Killings by Police Turn Routine

Paulo Nascimento seemed to know what was coming when police caught him hiding in ahome on a poor outskirt of So Paulo last November. The suspected car thief emergedpleading for his life with shrieks of "For the love of God!"

One officer slapped his face. Another kicked him in the rear. A third shot him.

Normally, Mr. Nascimento's death would garner little attention in a country where police killmore suspects than almost anywhere else in the world. Police in So Paulo state killed onesuspect for every 229 they arrested last year, according to government figures, comparedwith one per 31,575 in the U.S. in 2011.

But Mr. Nascimento's death stood out. An anonymous neighbor filmed his final moments,and a television news show aired the video the next day. Prosecutors have filed murdercharges against four of Mr. Nascimento's arresting officers. The officers have pleaded notguilty; their trial is set to begin as soon as August.

In a country where many weary of violent crime justify police vigilantism, the video andpending trial are giving momentum to reformers who say the take-few-prisoners approachby Brazilian police is out of step with the aspirations of an emerging democracy seeking tolift a vast underclass into prosperity. They are reminders of Brazil's uneven development:

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Though the economy has surged, other areas such as criminal justice remain firmly in theThird World.

The problem is acknowledged by government officials, including So Paulo's governor, whohas replaced his hard-line security chief with a mild-mannered lawyer vowing to take stepsto reduce unjustified police shootings. In an interview, the new chief, Fernando Grella Vieira,

said that the city has a "category of criminality" that will always lead to some justified policeshootings. But, he added, "we aren't going to tolerate abuses on the part of the police."

Two months after the Nascimento shooting, meanwhile, a separate incident drew attentionto what prosecutors allege is one of the darkest sides of Brazilian police: Freelance deathsquads, called grupos de extermnio, in some precincts. As recently as 2010, four militarypolice officers were sentenced to 18 years in prison for participating in one squad, whichallegedly decapitated some of its victims.

Although neither the officers accused in the Nascimento killing nor anyone else has beencharged with being part of a squad, investigators say other officers from the same precincttried to sway the case by donning ski-masks and shooting up a bar not 50 yards from where

Mr. Nascimento was shot. Seven people were killed and two wounded. Among those killedwas Larcio Grimas, a lanky rapper known as DJ Lah. His hit song, "Click Clack Bang,"warned young people, guilty or not, to run from police since "pardon is rare." Rumors hadcirculated that DJ Lah was involved with the video, locals told investigators. Prosecutorsthink he was targeted for it.

Under public pressure, So Paulo officials ordered ballistic tests done on every tacticalweapon in the Nascimento officers' precinct. The test matched a bullet dug from a body to apolice .40-caliber Taurus pistol. From there, officials found ski-masks and a shotgun withblood on the stock. Prosecutors charged nine officers with murder. The officers are disputingthe charges.

Defense attorneys deny the DJ Lah and Nascimento murders are linked. And it lateremerged that DJ Lah didn't make the video. Police documents show the person who did isnow a protected witness.

Mr. Grella Vieira, who ordered the ballistics tests taken after DJ Lah was shot, said that sincehe took office and started a zero-tolerance policy toward abuse, investigators have arrested40 officers who have been charged with murder or accessory to it, but who have pleadednot guilty. He called the arrests an important "pedagogical message" and pointed out thatjustifiable homicides by So Paulo police dropped by more than half to 66 in the first threemonths of the year from a year ago.

As part of the crackdown, he has also prohibited police from transporting wounded suspectsto hospitals, a measure sought by Human Rights Watch in a 2009 report. The nonprofitalleged that often such trips are coverups for executions of the wounded on the way to thehospital. Prosecutors allege such a fate befell Mr. Nascimento.

Even though prosecutors in the Nascimento and DJ Lah cases say the evidence in theircases is strong, they expect an uphill battle convincing a jury. One reason is public opinion:Many fed-up citizens prefer police killings to what they see as out-of-control violent crime. ADatafolha poll taken a month after Mr. Nascimento was killed found that 53% of So Pauloresidents believe an officer who kills criminals as part of a grupo de extermnioshould get nojail time if caught.

Paulistanos live on high alert when it comes to crime. Robbery-homicides have soared thisyear from already high levels, and newspapers here are filled with accounts tinged with

vengeful brutality. In a new trend this year, three victims were set ablaze in separatecrimes, apparently because they didn't have much cash. Regular newspaper fare relegated

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to the back pages: clean-out jobs by armed crews who take over entire restaurants, or evenwhole buildings, and rob everyone inside.

Few of these crimes are solved, while cases that are prosecuted can take years to come totrial. Criminals who are jailed go to prisons dominated by the Primeiro Comando da Capital,or PCC, a gang big enough to challenge the police head-on. Last year, the PCC put a bounty

on police after officers killed a PCC leader. More than 100 police were killed.

The conclusion of many is that the criminal justice system is largely broken. When Globo TVput the video of Mr. Nascimento's shooting online, most of the comments supported thepolice. This one is typical: "CONGRATULATIONS TO THE [Military Police]!!! WHILE THESTATE DOES NOTHING YOU DO THE CLEAN-UP THAT THE CITY NEEDS, BUT NEVERFORGET: JUST KILL BANDIDOS OK?"

The result is juries here tend to give police the benefit of the doubt. Prosecutors in both theDJ Lah bar shooting and the Nascimento case concede the public is tired of the city's crime.Meantime, Celso Vendramini, the lawyer defending the police in the Nascimento case, isoptimistic. A gregarious former police officer with a bearlike frame and knack connecting

with juries, Mr. Vendramini has made a career winning such cases. "If you kill someone, callme," he jokes when presenting his business card.

In May, Mr. Vendramini won a 4-3 jury verdict to absolve two officers of executing a robberysuspect in an isolated cemetery in March 2011. Prosecutors had high hopes because ahidden witness called Brazil's version of 911 and narrated the shooting in real time. Mr.Vendramini argued self-defense for his clients.

Mr. Vendramini says he finds holes in prosecution cases to create doubt, such asinaccuracies in witness statements. He also mounts a good-riddance defense by painting thevictim as a menace. It's a common tactic. Some lawyers spread out printouts of the victim'scriminal record in the courtroom to show how long it is.

In the Nascimento case, Mr. Vendramini must contend with the video that appears to showone of his clients shoot an unarmed man in custody. He will argue the officer tripped andfired accidentally. And he has beaten video evidence before. In February, he won not-guiltyverdicts for police accused of stopping on a highway shoulder to shoot an allegedly corruptofficer in their custody. He argued the police actually shot him in an earlier shootout andonly pulled over later because their driver had a leg cramp.

Most police shootings happen in So Paulo's poor urban outskirts, known as peripheries,sprawling labyrinths of humble dwellings and concrete at the bottom of Brazil's gapingeconomic divide. There, acceptance of police violence is a harsh reminder that classprejudice and inequality persists in Brazil despite recent economic gains.

Father James Crowe, an Irish priest at the Santos Mrtires parish on So Paulo's southernperiphery, says the police brass lose their jobs if they shoot a man in a good neighborhood.On the outskirts, "the city breathes a sigh of relief," he says. "One less bandido." The policesay they do not differentiate parts of the city.

Many academics trace police violence to the country's 1964-1985 dictatorship, when themilitary police got the job of patrolling the streets. But Brazil's police have been violent sincethe first forces were set up as slave catchers in the 19th century.

The phenomenon is hardly confined to So Paulo. In fact, So Paulo police are amongBrazil's least lethal. Despite experiments with community policing, Rio de Janeiro police killsuspects at nearly four times the rate of So Paulo police, Rio de Janeiro police statisticsshow. The symbol of Rio's tactical police is a skull with two pistols and a knife crossedthrough it.

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But what happens in So Paulo is crucial: If Brazil's wealthiest, most cosmopolitan anddeveloped state can't modernize its police, experts say, it's unlikely other states can.

To understand why police kill, Adilson Paes, a 30-year police veteran, did anonymousinterviews for his master's thesis with police who had killed. "I was haunted by the image ofboyish-faced kids coming out of the academy and becoming killers, and wanted to do

something," Mr. Paes said.

The study concludes that many officers leave training unprepared for the level of violencethey will face. (So Paulo state officials say police are well trained.) Some adopt wartimementalities where killing means survival. Others succumb to peer pressure and kill tomaintain status in the squad room.

Others find they are arresting the same suspects over and over, and adopt a vigilante credoafter concluding that the system has failed. Some find killing brings a sense of power. Onesaid he gave victims a minute to pray before he shot them.

Some mix of these motivations, prosecutors allege, may have come together on theNovember morning that culminated with Mr. Nascimento's death. It started with a shootoutbetween officers and Mr. Nascimento and two accomplices who were firing from a stolenFiat, police said.

According to court documents, the suspects ditched the car and ran for it. Police shot deadthe first suspect to emerge from the car. In 2008 he'd been arrested with a PCC leader, andhad a tattoo on his back memorializing a 1992 prison massacre where police were convictedof killing dozens of inmates.

The driver got out and ran. The police who caught him realized they'd arrested him monthsearlier for robbery. The driver begged for mercy.

"I had a gun when you caught me last time, and I didn't shoot at you," the driver said,according to testimony by officer Mario Queiroz. Mr. Queiroz took him to jail, but he wasfreed later and is now a witness for the prosecution.

Mr. Nascimento was the third to get out of the car, the court documents say. He ran downan alley to the Jardim Rosana ghetto, where locals knew him as "Lemon," a 25-year oldfixture at nightlong block parties who had been in and out of jail for robbery, forgery andother crimes.

Mr. Nascimento was already bleeding from a gunshot wound. According to police testimonyin the court documents, two officers chased him: Second lieutenant Haltons Chen, a skinny25-year-old three months out of the academy who had never seen anyone shot before, andMarcelo Silva, an 8-year veteran with a tattoo of a skull crossed by assault rifles on his rightarm. In the military hierarchy of the police, Mr. Chen was the ranking officer at the scene.

They followed Mr. Nascimento's blood trail to a house where he'd taken refuge. In thevideo, Mr. Chen walks a captured Mr. Nascimento out of the house and to his waiting squadcar. Near the car, Mr. Silva appears to shoot Mr. Nascimento. The video shakes, and asecond shot is heard.

Hospital records show Mr. Chen later dropped off Mr. Nascimento's body at the hospital. Inthe initial police report, court document say, Mr. Chen indicated Mr. Nascimento died in ashootout. But on Nov. 12 after the video surfaced, say court records, Mr. Chen told adifferent story: Mr. Nascimento was executed on the way to the hospital by a third officer.Mr. Chen said he feared for his life from other police, according to court records of hisstatement to police investigators.

In this account to investigators, Mr. Chen says Mr. Nascimento was still alive after being hitby the two gunshots heard on the video. But as Mr. Chen prepared to drive the prisoner to

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the hospital, he was surrounded menacingly by other officers. A third policeman, JailsonPimentel, got into the vehicle with them.

Mr. Nascimento was banging the car walls and screaming "You are killing me." At somepoint, Mr. Pimentel stuck his gun through an air slit and shot Mr. Nascimento and thescreaming stopped, Mr. Chen told investigators. Mr. Pimentel denies shooting Mr.

Nascimento.

By the time of the Feb. 27 arraignment, Mr. Chen changed his account to a third version,saying he lied in his first account out of fear of punishment by the department. By now Mr.Vendramini, the defense lawyer, was defending all four defendants: Mr. Silva, Mr. Pimentel,Mr. Chen and his driver. He says Mr. Chen has told him one account.

In that account, Mr. Chen now denies accusing Mr. Pimentel of killing Mr. Nascimento.Investigators "made that up," Mr. Chen said, a charge denied by police. Mr. Silva nowadmits shooting Mr. Nascimento on the video, but only by accident after tripping, and onceagain in a scuffle. "But nowhere on the video does it look like you tripped! There's nodisarticulation of your body!" Judge Carla Ferrari exclaimed incredulously during the

arraignment.Mr. Vendramini, the defense lawyer, let the judge's remarks go uncontested. All he wants,he said, is to get the case in front of a jury fast. Motions and objections just slow thingsdown. "You see all of this?" Mr. Vendramini said, waving his hand at the courthouse. "All ofthis is broken."

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