Brazil Inc
Economy
Economic Overview:
Characterized by large and well-developed agricultural, mining, manufacturing, and service sectors, Brazil's economy outweighs that of all other South American countries and Brazil is expanding its presence in world markets. Having weathered 2001-03 financial turmoil, capital inflows regained strength and the currency resumed appreciating. The appreciation slowed export volume growth, but since 2004, Brazil's growth has yielded increases in employment and real wages. The resilience in the economy stemed from commodity-driven current account surpluses and sound macroeconomic policies that bolstered international reserves to historically high levels, reduced public debt, and allowed a significant decline in real interest rates, which nevertheless remain high by world standards. A floating exchange rate, an inflation-targeting regime, and a tight fiscal policy are the three pillars of the economic program. From 2003 to 2007, Brazil ran record trade surpluses and recorded its first current account surpluses since 1992. Productivity gains coupled with high commodity prices contributed to the surge in exports. Brazil improved its debt profile in 2006 by shifting its debt burden toward real denominated and domestically held instruments. "LULA" DA SILVA restated his commitment to fiscal responsibility by maintaining the country's primary surplus during the 2006 election. Following his second inauguration in October of that year, "LULA" DA SILVA announced a package of further economic reforms to reduce taxes and increase investment in infrastructure. Brazil's debt achieved investment grade status early in 2008, but the government's attempt to achieve strong growth while reducing the debt burden created inflationary pressures. For most of 2008, the Central Bank embarked on a restrictive monetary policy to stem these pressures. Since the onset of the global financial crisis in September, Brazil's currency and its stock market - Bovespa - have significantly lost value, -41% for Bovespa for the year ending 30 December 2008. Brazil incurred another current account deficit in 2008, as world demand and prices for commodities dropped in the second-half of the year.
Latin America poised for quick exit from crisis: IDB
VINA DEL MAR, Chile (AFP)
Latin America and the Caribbean are well placed to emerge from the storm buffeting much of the global economy, multilateral lenders said while meeting with regional ministers.
The finance ministers gathered at Vina del Mar in Chile agreed to seek "a more active role from multilateral lending institutions" for the crisis but also for after the crisis, said Chilean Minister Andres Velasco. Velasco cited a World Bank report that estimated a financing shortfall of 350 to 635 billion dollars per year for emerging countries, of which Latin America accounted for 115 to 180 billion.
The Inter-American Development Bank (IDB) meanwhile said it would increase its capital base by 6 billion dollars to help Latin America and the Caribbean tackle the global financial crisis. The funds came from Canada's offer to increase to 4 billion dollars its contribution to the regional lender, the bank said in a statement. Two more billion dollars would come from a change in an internal norm at the bank that had limited the amount of the loans depending on contributing countries.
Another priority identified by the ministers meeting in Chile was better integrating the continent, its infrastructure and its transportation, Velasco said. >>> Go to Full Story >>>
Tight rules helped mitigate crisis in Brazil
From Financial Times
If Bernard Madoff had tried to run his Ponzi scheme in Brazil, it would never have got off the ground.
"There could never be a Brazilian Madoff," says Paulo Oliveira, director for new business at BM&F Bovespa, the multi-asset exchange formed last year by the merger of the São Paulo derivatives and stock exchanges. "The regulators always want to know both sides of all trades."
In many countries, regulators and exchanges require banks and brokers to reveal only the net position of their clients. If a client is long in one asset and short in another, his net position may be neutral. But he could still be a risk.
But in Brazil, brokers are obliged to provide information on every trade by every client, identified by their registered account number. Mr Madoff, who allegedly invented clients' trades and had no obligation to deliver proof, would have been stumped.>>> Go to Full Story >>>
Welcome Reversal: Brazil's Banks Are Strengthening Its Economy Despite the Downturn
Far from being the country of samba and Carnaval alone, Brazil has emerged in the last decade as one of a handful of countries with the greatest growth potential. Should economic forecasts prove accurate, the country’s financial sector will play a key role in making its growth highly attractive to businesses and investors alike. Even amid the worst worldwide financial crisis since the Crash of 1929, Brazil continues to distinguish itself with optimistic economic growth forecasts over the next few years. The latest IMF forecast for GDP, for example, projects 2.1% growth in 2010, versus forecasts for major industrialized countries that largely come in under 1%, and in some cases are even negative.
Now, a rash of mergers and acquisitions is redrawing Brazil’s financial map, converting the country of samba into a land of opportunity, even as financial markets outside the country shrink drastically in the face of the global downturn. This picture of growth has not escaped the attention of local and international institutions, which in recent years have begun an unprecedented process of expansion and consolidation. Those institutions that position themselves best and acquire more economic strength will benefit the most from the Brazilian boom.
One need look no further for proof that corporate deals are increasing than to the merger between Itaú (second-ranked in size) and Unibanco (ranked sixth); the purchase by Banco de Brasil (ranked number one) of Nossa Caixa (ranked tenth) and of 50% of Banco Votorantim (eighth); the acquisition of Banco Cacique by Société Générale; and, just this month, the agreement to sell Banco Pactual, the Brazilian division of Switzerland’s UBS, to BTG Investments for $2.5 billion. This deal has come at a critical time for the distressed Swiss institution, which is undergoing a liquidity crisis.
But, what’s behind all these deals? >>> Go to Full Story >>>
The One Country That Might Avoid Recession Is...
Brazil is no stranger to economic crises. In the 1970s and '80s, Latin America's economic giant turned financial mismanagement into an art form. The current global turmoil has not left Brazil unscathed: stock prices, exports and growth are all down. But something interesting is at work this time around, and the best place to see it is in one of Brazil's favelas, the vast urban slums that are desperate even in the best of times. Walk through São Paulo's sprawling Brasilândia, though, and you don't sense the relentless doom and gloom gripping other cities in the world. Take Efigênia Francisca da Silva, who exudes middle-class expectations and remains positive despite the tsunami of bad news. In past crises, Brazil was usually the nation in need of the largest life preserver. If it wasn't drowning under fiscal recklessness, it was being held under by draconian austerity plans. Brazil, the old joke goes, is the country of the future — and always will be. Now, in the middle of the worst global downturn for decades, Brazil could finally be the country of the moment. >>> Go to Full Story >>>
