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Brazilian President Considers Tapping Into Foreign Reserves to Raise Cash

Brazilian coins Brazilian president Dilma Rousseff said that her cash-strapped government could consider tapping into Brazil’s sizeable foreign reserves at any moment, an idea that troubles investors already worried about the country’s economic decline. 

In an interview with the Brazilian press, Rousseff said she was neither for nor against using Brazil’s international reserves, which total about US$ 370 billion.

But she added: “It’s not sacred. There are moments in which that could become an option to be considered.”

Her comment appeared to be a change of stance for Rousseff, who recently told reporters that the use of the reserves was not being considered by her government.

Most in her economic team share that view, but with Brazil in its worst recession in decades and with a growing fiscal deficit to boot, Rousseff is under pressure from her leftist Workers’ Party to ditch austerity and spend more, including some of the international reserves.

Brazilian coinsEconomists warn that such a measure would stoke already high inflation, weaken Brazil’s currency further and create greater uncertainty for investors following the loss of Brazil’s investment-grade credit rating in December.

The real recovered slightly on Friday to 4.10 to the dollar from 4.16 on Thursday, its lowest closing level since the currency was created in 1994.

A survey released this week by the Data Popular Institute shows that the economic crisis has reduced the consumption for nine out of ten people in Brazil. The interviews were conducted from January 4th to 12th, with 3,500 consumers over 16 in 153 municipalities in all Brazilian states.

According to the results, out of the 99% of respondents who believe the country is in crisis, 81% are sure to be living a recession period, and 55% said that this is the worst crisis they have ever faced.

According to Renato Meirelles, the Institute’s president, this happens for two reasons. The first is that now there is a huge number of consumers who were not adults at a time Brazil faced hyperinflation.

“It’s a group of young people who tend to think that this is the worst crisis. But we have had crises reporting higher unemployment rates, when the country had less international reserve than today and more inflation,” he noted.

The other reason, according to Meirelles, is that as the current crisis came after a strong stage of growth, and many Brazilian people came to afford products and services that they could not consume before. Therefore, there is a stronger sense of loss.

Data Popular’s president pointed out, however, that many people who failed to run their personal projects last year, are willing to carry them out in 2016. Out of 63% of people who planned to buy a property in 2015 but could not buy it, 35% believe that they will be able to realize this dream in 2016.

The percentage rises to 69% when added the number of people who planned to buy a household appliance in 2015 and could not buy it (54% of respondents).

Rousseff said last week that she was “appalled” at the worse forecasts of the International Monetary Fund (IMF) for the Brazilian economy. During a meeting of the Democratic Labor Party (PDT) convention in Brazilian capital Brasília, she said the country will resume growth, because “we have solid foundations for this.”

“I am appalled at the International Monetary Fund report, we know that the IMF talks a lot,” she stated. This week the IMF released a report with forecasts for the global economy. For Brazil, the organization estimated a larger drop in the gross domestic product (GDP), from 1% to 3.5%.

According to the president, the IMF recognized that Brazil’s plight was not only caused by the economy. “There were two factors: the long political instability and Petrobras investigations lasting for a longer period and being deeper than expected. These are the main factors that forced the Monetary Fund to review their stance on Brazil’s growth.”

For Rousseff, investments will be attracted back to the country and Brazil will resume growth and will not interrupt the social inclusion process, and education will continue to be the central issue of her government.

“I’m sure that we will politically stabilize the country, we will ensure tranquility for the country to resume growth. In a democracy, it is absolutely normal to have the opposition or any person criticizing the government and expressing themselves.

“We cannot accept that central issues for the country not being performed by a joint action aimed at ensuring that we generate jobs and income again. We will do our part,” she pointed out.

Pre Candidacy

At the meeting, the Democratic Labor Party’s (PDT) national directory decided to announce Ciro Gomes, Ceará’s former governor and former National Integration Minister, as a candidate for the presidency in 2018.

The party also upheld their decision about being against President Dilma Rousseff’s impeachment proceedings, initiated at the House of Representatives and decided to support the ouster of Eduardo Cunha (member of the Brazilian Democratic Movement Party—PMDB) as president of the lower house.

President Dilma Rousseff thanked the support of the PDT (of which she was a member until 2002) and reaffirmed that these proceedings against her are a coup attempt.

“During my whole life, as a member of the PDT or the Workers’ Party (PT), I have never faced a single charge of misusing public money. I have no money [in bank accounts] abroad and have an unblemished reputation,” she declared receiving applause from the members of the PDT.

The president pointed out PDT’s founding member Brizola, whom she called a Brazilian hero, and said she needs suggestions to make Brazil move forward.

Industry Down

Brazil’s industrial sector closed out 2015 with record idleness levels, the National Confederation of Industry (CNI) reported in its Industrial Indicators survey. Capacity utilization reached 62% in December, the lowest level for the monthly time series that started in January 2011.

Investment intentions have fallen 0.8% in January compared to December, scoring 41.6 points, according to the CNI. The investment intention index ranges between 0 and 100 points. The higher the index, the greater the intention to invest.

Production also dropped sharply in December, scoring 35.5 points. Figures below 50 points indicate a decline in industrial production compared to the previous month.

The staff size evolution index was also below 50, standing at 41.5 in December, which reflects a decline in industrial employment.

Weak industrial activity creates business investor concerns about demand, staff size, and raw material procurement for the next six months. While these indexes rose in January compared to December, they have remained below 50, which is a negative outlook. The demand indicator stood at 44.8 points, supplies procurement recorded 43.6 points, and staff size scored 42.3.

Only exports have offered positive expectations for growth in the coming months, scoring over 50. The export quantity index rose from 50.1 in December to 52.4 in January.

According to the Industrial Indicators survey, a high tax burden, low demand, and high energy costs were the main problems facing the industry in the last quarter of 2015. The tax burden was cited by 49.3% of business investors, low demand accounted for 43.9% of the responses, whereas 28.9% of respondents mentioned the high cost of energy.

This edition of Industrial Indicators surveyed 2,225 companies including 910 small, 815 medium, and 500 large businesses on January 4-13.



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