Brazil Is Not Feeling that Immune to Global Crisis Anymore

    Street vendor in Brazil

    Street vendor in Brazil Some Brazilian experts believe that no one is going to profit from the international financial crisis. In Brazil, even though the country is much better prepared than in the past to face foreign turbulences, the effects are already felt in the capital and financial markets and, for 2009, a more modest actual economic growth is expected.

    Last Friday, even after the approval of the rescue package to banks in the United States, Ibovespa, the main index in the São Paulo Stock Exchange, fell 3.53% and reached 44,517 points, the lowest level since March last year.

    In New York, the stock exchange has also fallen. The dollar value rose 1.14% to reach 2.04 Brazilian reais (US$ 1.02), the highest rate since August 2007. This indicates that market operators do not know yet what will be the actual reach of the United States government's measures.

    "It is going to take some time, because there are doubts regarding the influence of the package on the assets that are being questioned," said economist Luiz Gonzaga Belluzzo, a Professor at the University of the State of Campinas (Unicamp).

    "There is a shortage of credibility. As good as the package may be, there is going to be a lot of uncertainty on whether it is going to work, as long as this phase is not over," stated the vice-president at the Brazilian Foreign Trade Association (AEB), José Augusto de Castro.

    Specialists agree that the Brazilian economy remains solid and has fat to burn. Foreign currency reserves total over US$ 200 billion, the government has been adopting austere monetary and fiscal policies for years, with inflation and primary surplus goals, the country's foreign debt is under control, and this year it became a foreign creditor. Besides, the national banking system is still quite healthy.

    The secretary general at the Arab Brazilian Chamber of Commerce , Michel Alaby, added that in the long run, Brazil is going to benefit from revenues from oil production in the reserves recently discovered at great depths in the Santos Basin, as well as from the development of the global market for clean energies, which has already mastered technologies for large scale production of biofuels.

    The effects of the crisis, however, are already felt in some segments of the economy, with reduction of credit lines throughout the world and rising interest rates for financing. In Brazil, this is particularly damaging to the export sector.

    Alaby underscores that the rates charged on Advance on Exchange Contract (AEC) lines, a modality of export financing, rose steeply from 6% a year to 16.5% a year in just two weeks. "There are few AEC lines available and they are more expensive. Businessmen are only going to use them if they have no other option," stated Castro.

    In order to alleviate the credit crunch, the Brazilian government announced last week that the Bank of Brazil is going to forestall the availability of 5 billion reais (US$ 2.4 billion), so as to ensure financing to the rural sector.

    Furthermore, the Central Bank of Brazil has relaxed the regulations for mandatory payments that banks are obliged to make to the institution, which should result in a 23.5 billion reais (US$ 11.5 billion) cash surplus in the market.

    The National Monetary Council (CMN), in turn, has maintained its long-term interest rate (TJLP) at 6.25% a year. The rate is used by the Brazilian Development Bank (BNDES) in loans to the productive sector.

    It is not yet known, however, whether these measures will suffice to quench the thirst for credit of the Brazilian economy. "The government made the right decision, but whether it will be enough for us or not, we are only going to find over the next few days," said Belluzzo. He believes, though, that Brazil will have space to take the measures further if needed.

    The higher interest rates end up eliminating the profit exporters could derive from the appreciation of the dollar against the Brazilian real, which theoretically would make Brazilian products cheaper abroad.

    Besides, the lower liquidity and the perspective of recession in the world's largest economy drive down the international demand for goods, and consequently the prices of commodities. And Brazil is a large exporter of agricultural and mineral commodities.

    The more appreciated dollar also contaminates the domestic market, as it makes the imported inputs used in the country more expensive, and burdens companies indebted in foreign currency. It is worth noting that up until a short time ago, there was wide availability of cheap credit around the world.

    The price of consumer goods also rises. All of these factors may drive up inflation, thus forcing the Monetary Policy Committee to raise the basic interest rate (Selic) even further.

    Belluzzo underscores, though, that in a scenario where global demand is cooling down, it is unlikely for companies to even have space to pass the cost along to consumers. "If the slowdown is strong, then no exchange rate will be able to boost inflation," he stated.

    To Michel Alaby, countries that have "fat to burn", such as Brazil, China, Russia and India, may suffer less damage from the crisis due to the large size of their domestic markets.

    For the sake of illustration, even in a period of uncertainty, the National Confederation of Industries (CNI) has raised its growth forecast for the industrial sector and the Brazilian GDP in 2008 to 5.5% and 5.3%, respectively. And that is precisely due to domestic demand, which remains strong.

    Alaby claimed, however, that China might suffer the impact of retraction in the United States and start looking for more and more space for its products in other markets, including Latin America.

    Thus, he asserts that, even under adverse conditions, Brazilian exporters should seek to establish themselves in markets that have not yet been severely harmed by the crisis, especially the Middle East and the Far East.

    If, in 2008, which is already coming to an end, no big changes are expected in the Brazilian economic scenario, the outlook for 2009 is different. As the bottom of the crisis is not yet known, it is difficult to make forecasts.

    Castro has a pessimistic opinion. He believes that the Brazilian trade balance is going to shrink, possibly even to the point of posting a deficit, and the economy is going to grow less.

    To Belluzzo, a clearer view will only be possible from now on, as governments intervene in the markets. He defends firm action in that respect. Alaby, on the other hand, believes that credit scarcity should not last longer than four months, and that the dollar value should stabilize at a level a little below 2.00 reais (US$ 1).

    Anba – www.anba.com.br

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    • Show Comments (8)

    • Dude

      Brazil
      I,m So Glad to see, how important Brazil Is For you!
      Just keep Looking, Maybe You Should Stp The Brazilian May not give you a Job if you have to Immigrat Down There!
      Have you see your economy??

    • Augustus

      JOAO – EXTREME PESSIMISM…
      As suggested by the comments I have entered tonight in connection with two recent editorials in this blog, my pessimism has become so intense, that I find myself unable to adopt any outlook which does NOT conclude with a tragic, chaotic global scenario…
      Consequently, I shall refrain from any further comments lest I might negatively impact any remaining hopeful optimist who may accidentally stumble upon my extremely pessimistic remarks…

    • João da Silva

      Ch.C !
      [quote]Joao, who was the only CONSTANT contrarian who ended up right, for grains prices, oil prices or metals prices and even ethanol ?????[/quote]

      You were right all the time! I am not kidding!!

      [quote]How smart these American Junkies are, especially the one with the 2001 Nobel Memorial Prize in Economic Science !!!!!!
      [/quote]

      May be Joseph Stiglitz also found his Doctoral degree in a detergent pack 😀 😉

      So what are we going to do now to save the System, Ch.C?

    • ch.c.

      Joseph Stiglitz
      …was also sure the US$ will continue to go DOWN…for ever !

      How smart these American Junkies are, especially the one with the 2001 Nobel Memorial Prize in Economic Science !!!!!!

      The title says it all……MEMORIAL !!!!!

      – A big parralel with the SP University Certificates found…..in a detergent pack !!!
      – A big parralel with the World Best in maths & Science & stats-probabilities who worked for Merrill Lynch, Lehman, Bear Sterns,
      WAMU, AIG, monoline insurances, Wachovia, Citigroup and those working in the EU banks, but also the ones at UBS.
      Sure Joao….I can prove you how the smartest cookies at UBS were !!!!!!

      Look no further than a chart of their stock prices,of how their spread sheets were accurate !

      Even a 3 years old non educated yet kid will tell these World Smartest Junkies…that something doesnt add !!!!!
      Nothing had to be added, but everything had to be substracted !!!!!
      So true…that neither the yet non educated 3 years old child nor the World Smartest Experts in Finances have the slightest idea of what it will end up costing based upon their multi.millions US$ spreadsheets !!!!

      But dont kill yet the Americans Junkies. As I said they are by now the World Best Emerging Country.
      Just wait their currency to top in 2 to 4 years out !!!!! And then SELL IT AGAIN against the Euro or the Swiss Franc.
      Selling the US$ against the Swiss Franc will be a surer bet. Because after all, the Euro ex-Germany is not any better that the US$ crap on a secular basis !!!!!!
      And believe it or not, there is no nationalism in my comments. Just look at very long term charts since the early 1970’s when the world ended the fixed exhange rates.

      Simple as that. Isnt it ?

      😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉

    • ch.c.

      Do you think that the real name of Ch.C is Joseph Stiglitz?
      CH.C. answer is Nooooooo !
      Stiglitz received a Nobel Prize. I did not !

      Stiglitz WAS 100 % sure oil could go only one way : UP !!!!! He said so numerous times in many Middle East Conferences…not later
      than LAST SUMMER !!!!!!! And same conclusion for all commodities, wether be it for foods, grains, non ferrous metals etc etc due to China and India economic growth rates !!!!!!
      And most of these conferences were sponsored and re-transmitted by CNBC !!!!!

      😀 😉 😀 😉 😀 😉 😀 😉

      A few times I asked cynically are we in POP or in POP !
      Peak Oil Price or Peak Oil Production !
      And you all know what was the answer from the Brazilians junkies writing here. They just repeated what they read and heard, time and again, time and again !

      Joao, who was the only CONSTANT contrarian who ended up right, for grains prices, oil prices or metals prices and even ethanol ?????
      Brazilian cheaters were red and blue faced trying to sell the Brazilian ethanol, since 2005, and telling the world sugar ethanol is competitive to oil at US$ 40-50 per barrel. Since then oil peaked at 3 times those levels, and is still at twice the approximate breaking profitability price. Right ????
      Since 2005 what was the price of ethanol ? UP OR DOWN ????
      And for the last 4 quarters, corresponding with the highest average in oil price, has COSAN made ONE CENTAVO of profits ???????

      Brazilians always cheat, lie and hide. Proven just once more !

      Ohhhhhhh but you did the same scams, cheats and lies with…………. Teaks plantations, non fatty and superior meat : Ostriches !!!!

      Short memory !

      And as I said many times recently : The more Petrobras finds LAKES of oil, under the ocean, the more its stocks price goes…DOWN !!!!!!!!!!!
      Are you so sure that after all it was not LAKES OF….. PURE WATER ?????
      😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀

      You see Joao, on a best case basis it could be oil.
      Stupid questions then :
      1) Venezuela has PROVEN oil reserves of well above 200 billion barrels, and none as deep as the eventual/possible fields than those in Brazil. Right or not ?
      2) At how much do you estimate the market capitalization of PVDSA if that company would be 100 % listed in an exchange ??????
      3) 200 billion times US$ 50.- (conservatively) ?????? That would make a market cap of US$ 10 TRILLION !!!! or close to 100 % of all
      the companies in the USA ?????
      4) Lets be more conservative, and use Us$ 25.- per barrel ? That would still make a market cap of US$ 5 TRILLION ???????

      Come on Joao, come on. I thought you would be smarter than that !!!!!!
      Dont tell me your brains are made of the Brazilian LINUX software !

      So far I have a higher esteem in Joao brains, than in the Brazilian LINUX software that Lula the idiot is so proud of !!!!!
      In my view this software should be called NILux !

      😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉

    • João da Silva

      Augustus/Dnb
      Here is an interesting link:

      [url]http://www.estadao.com.br/economia/not_eco254793,0.htm[/url]

      Do you think that the real name of Ch.C is Joseph Stiglitz? 😀

    • João da Silva

      [quote]Since the Bovespa is now down over 12%, more than any other market in the Americas. [/quote]

      I urge all our fellow bloggers to stay cool during this crisis. I am sure our Minister of Finance is taking some extraordinary measures to bring back the situation to normal. 😉

    • Ric

      This article got out of date quickly
      Since the Bovespa is now down over 12%, more than any other market in the Americas.

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