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