The stock market's big fall occurred in response to the rejection, by the US House of Representatives of a US$ 700 billion-dollar package presented by the Bush administration to bail out Wall Street.
"Today is an atypical day and a special case and we cannot anticipate what's going to happen from now on," said Rubens Sardenberg, chief economist of Febraban (Brazilian Federation of Banks). Sardenberg fears that the American crisis might put a brake on Brazil's Gross Domestic Product (GDP).
Bovespa's decline represents a fall of about 40% vis-a-vis the historical peak of the stock market, just last May.
This was the biggest drop since January 14, 1999, when the Bovespa fell 9,97%, the day before Brazil adopted a system of free exchange. On Monday, Rossi Resid and BMF Bovespa had the heaviest losses: 21.06% and 20.21% respectively.
Brazilian authorities expressed their confidence in the strength of the Brazilian economy. President Luiz Inácio Lula da Silva, Central Bank chief, Henrique Meirelles and Guido Mantega, Finance Minister, all stressed the Brazilian finances good health and the country's capacity to weather the crisis.
Lula noted that emerging countries cannot turn into victims of the casino that has become the American economy:
"They need to have responsibility because the emerging countries and the poor countries that have done all they could to have a good fiscal policy, that have done all they could to make the economy stable, cannot become victims of the casino they set up in the American economy. It is not fair that Latin American, African and Asian countries have to pay due to the American financial system's capriciousness," said Lula.
"We know that the crisis is serious, we know that this is going to reduce the credit in the world but we are convinced that our exports will keep on doing pretty well, our industry will keep on growing, we have important projects from our Growth Acceleration Program, we have important projects of infrastructure that we are not going to stop, we will carry on because Brazil is not going to throw away this chance after so many years waiting to grow."
Mantega recognized that there will be problems with credit and that Brazil must be prepared to future challenges to its economy.
For the Finance minister, the Brazilian situation is different from that of developed countries. "The inflation is in check below the higher limit of our target. We are in a favorable situation to tackle this graver international situation."
The Central Bank chief said he was surprised at the US's Lower House decision. "We have just had another surprise, notice that the international situation is volatile and we did well not devoting ourselves to make predictions," said Meirelles.
"The country has today a better stability in terms of GDP growth." he noted mentioning just-released glowing economic data from the second quarter. "Today we have better conditions to resist. Not that the country is immune to crisis, but it's capable of tackling problems with more serenity than in the past."
Real Fall
Brazil's real plummeted the most in nine years, weakening past the 2-per-dollar level, as a direct consequence of the US House of Representatives rejection of the 700 billion US dollars bailout package for the financial system.
The real sank 6.1% to 1.9650 per dollar in mid afternoon trading from 1.8445 last Friday. The decline was the biggest since January 1999, when the government scrapped its defense of the currency and let it trade freely. Earlier in the day the real dropped as much as 7.8% to 2.0014, its weakest since August 2007. Brazil's currency has lost 17% against the dollar this month.
Demand for emerging-market assets also eroded after European governments rescued financial institutions. The UK Treasury seized Bradford & Bingley Plc, Britain's biggest lender to landlords, while Belgium, the Netherlands and Luxembourg extended an 11.2 billion euro lifeline to Fortis, the largest Belgian financial-services firm.
The real was also hurt by a tumble in commodity prices, which will push down the value of the country's exports of products such as coffee, sugar, soybeans and orange juice.
Brazil's national development bank, BNDES received a 15 billion real cash injection from the Treasury to aid companies facing tight credit markets. The bank will lend as much as 95 billion reais to Brazilian companies next year, bank President Luciano Coutinho told reporters in São Paulo, Monday.
During the weekend, President Lula had already blamed the United States for the global financial crisis and said its financial bailout plan was unfair to poor people.
"They want to help the banks and not help the poor," Lula said on Saturday in São Paulo during a campaign rally ahead of the October 5 municipal elections.
"Why give US$ 700 billion to the banks and no money to the poor guys who lost their houses?" Lula asked, according to local media. He was referring to the US housing market and massive foreclosures.
The former factory worker and union leader, who obtained record approval ratings this month, said the United States had the primary responsibility to fix a crisis with global repercussions that it had caused.
"I'm not at fault if they turned their economy into a casino," Lula da Silva said in reference to accusations that lax US financial regulations worsened the crisis.
He underlined that Brazil was in a better position to withstand the crisis than it was years ago, he added.