Not again, please! Brazil and India more vulnerable now to another crisis

Deepti Govind – Reuters, 04/25/2013

After bad economic news from Germany, China and the United States over the past few weeks, here are two more. Brazil and India, two of the world’s largest emerging economies, are increasingly vulnerable to another crisis or to the eventual end of the ultra-loose monetary policies in developed economies after five years of a severe global slowdown.

Weak demand for Brazil’s exports and the voracious appetite of local consumers for imported goods widened the country’s current account deficit to 2.93 percent of GDP in the 12 months through March, the widest gap in nearly eleven years. In dollar terms, that amounts to $67 billion.

To help fund this gap, Brazil could at first loosen the currency controls adopted in the past few years and let more dollars in. But if the dollar flows change too swiftly, Brazil would find itself with three other options: curb spending by growing less, allow a decline in the foreign exchange rate at the risk of fueling inflation, or burn part of its international reserves – which are large, at $377 billion, but not infinite.

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Brazil Central Bank sees high inflation for next 2 years

Alonso Soto & Asher Levine, 03/28/2013

Brazil’s central bank said on Thursday it expects inflation to remain relatively high in the next two years, raising its forecasts closer to the ceiling of the official target range, but it stopped short of signaling an imminent rate increase.

The bank’s quarterly inflation report confirmed market expectations that inflation is quickening despite slower growth in Latin America’s largest economy, a political liability for President Dilma Rousseff who must campaign for re-election next year.

Inflation hovering well above the center of the official annual target range of 4.5 percent, plus or minus two percentage points, has raises pressure on Brazilian policymakers to curb price pressures soon.

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Brazil Rousseff says won’t fight inflation with low-growth policy

Reuters, 03/27/2013

Brazil’s President Dilma Rousseff on Wednesday said she will not support policies that attempt to curb inflation by lowering economic growth.

“I don’t agree to policies to fight inflation that look into reducing economic growth,” Rousseff said in comments to reporters in South Africa, where she is attending a meeting of BRICS countries, broadcast by Brazilian government TV.

“Last year we had low economic growth, but inflation rose because we had a supply shock,” she added, repeating one of the arguments recently used by the central bank to justify keeping Brazil’s base Selic rate at an all-time low of 7.25 percent even as inflation neared the ceiling of a government target.

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Brazil Miracle architect emerges as ally of Rousseff’s rate cuts

Joshua Goodman – Bloomberg, 03/15/2013

Brazil should refrain from raising interest rates if President Dilma Rousseff hopes to win a “tug of war” with banks and spur faster growth, the architect of the country’s economic miracle in the early 1970s said.

Antonio Delfim Netto was finance chief when Brazil’s dictatorship jailed the then-Marxist activist Rousseff in 1970. Now, as a consultant and columnist he’s an often solitary voice praising her government’s cutting of rates to a record and use of capital controls to weaken the real.

Delfim Netto’s views run contrary to that of economists from Itau Unibanco Holdings SA, the nation’s largest bank, and JPMorgan Chase & Co., who say Rousseff’s policies on rates and the currency have been stoking inflation above the 4.5 percent target since 2010. Rousseff is on the right track and should stay the course, defying rate-swap traders who expect the central bank to raise interest rates 150 basis points by year-end, he said.

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Brazil to extend tax breaks to all manufacturers

Reuters, 03/14/2013

President Dilma Rousseff’s government plans to extend payroll tax exemptions to all Brazilian manufacturing industries to boost investment and growth in a stagnant economy, Trade and Industry Minister Fernando Pimentel said on Thursday.

“We are exempting a large part of Brazilian industry and hope to exempt all Brazil’s manufacturing industry by the end of this presidential term,” Pimentel told reporters.

Since last year, Rousseff’s government has given tax breaks to dozens of industries, such as carmakers and other durable goods manufacturers, to lower prices and bolster consumption. It exempted specific industries from payroll taxes, including the building sector, and plans to extend the exemptions to services.

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PEs in Brazil: record dealmaking, but what about an exit strategy?

Pan Kwan Yuk – Financial Times Beyond BRICS, 03/14/2013

2012 was another bumper year for private equity wheeling and dealing in Brazil.

While fund-raising cooled following a record 2010 and 2011, deal activity in Latin America’s biggest economy continued unabated. A total 147 deals, worth $5.7bn, were struck last year, an all time high, according to data from the Latin American Private Equity and Venture Capital Association (LAVCA).

But in the world of private equity, what goes in, must (eventually) come out. Given the stalled market in Brazil for initial public offerings over the last two years, will the returns live up to the hype?

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Brazil should stop being self-absorbed giant

Andres Oppenheimer – The Miami Herald, 02/26/2013

Brazil, South America’s biggest country, may become a global economic super-star in the future, but it will have to stop being an inward-looking giant.

There is new evidence that, despite President Dilma Rousseff’s announcement last week that Brazil will have a record grain crop this year, the country’s huge oil discoveries, and the unique propaganda opportunity Brazil will gain from hosting the 2014 World Cup and the 2016 Olympic Games, recent trade trends don’t bode well for the country.

The World Bank last week published a report entitled  The Brazilian Competitiveness Cliff that shows Brazil’s exports of high-valued industrial goods aren’t doing well. It says Brazil is facing “considerable competitiveness challenges.” Translation: the country is falling behind other emerging powers.

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Brazil’s economy grew in July at fastest pace in six months

Matthew Bristow – Bloomberg Businessweek, 09/14/2011

Brazil’s economy expanded at its fastest pace in six months in July, even as the central bank bets on slower growth to curb the fastest inflation in six years.

Economic activity, a proxy for gross domestic product, rose 0.46 percent in July from the previous month, according to the central bank’s seasonally adjusted index, after contracting a revised 0.25 percent in June. The increase was in line with the 0.50 percent median forecast in a Bloomberg survey of 11 analysts.

Central bank President Alexandre Tombini cut the benchmark interest rate a half point to 12 percent on Aug. 31, after raising it at the previous five policy meetings, citing a “substantial deterioration” in the global economy. Traders are betting the central bank will cut the rate to 11 percent by the end of the year, according to Bloomberg estimates based on interest rate futures.

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Brazil’s Economy: Changing direction Fiscal tightening, monetary loosening

The Economist – From the print edition, 09/03/2011

ON AUGUST 31st Brazil’s monetary-policy committee decided to cut the Central Bank’s benchmark interest rate by half a percentage point, to 12%. It was the committee’s most unpredictable meeting for many months. Just a week earlier, analysts were split between those who pointed to inflation at 7.1%, above the 6.5% ceiling of the bank’s target, as reason to expect another rise—the year’s sixth—and those who felt that turmoil abroad and a cooling economy at home were reason to expect the committee to stay its hand.

But on August 29th the calculations changed. The president, Dilma Rousseff, said that because tax receipts this year had been higher than expected, an extra 10 billion reais ($6.25 billion) would be set aside to pay interest on public debt. Later that day the finance minister, Guido Mantega, spelt out the implications for monetary policy. Raising the primary fiscal surplus (from 3.1% to about 3.4% of GDP) would open up space to cut rates, he said, “whenever the Central Bank thinks it is possible”. But analysts were still surprised by the speed and scale of the bank’s reaction.

The timing of Mr Mantega’s announcement—the day before the monetary policy committee started its deliberations—raised some eyebrows. Though in recent years the Central Bank has been largely free to set interest rates without government interference, it is not formally independent. The bank’s governor, Alexandre Tombini, is closer to the finance ministry than was his predecessor, Henrique Meirelles.

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Mantega admits global crisis in having an impact: lowers Brazil growth to 4%

Mercopress, 08/24/2011

The minister anticipated “we won’t let the economy fall”

Brazilian Finance minister Guido Mantega admitted before the Senate that the global financial crisis is already having an impact in the local economy and this will be reflected in a lower GDP for the twelve months.

“Although we are still working on our original forecast of 4.5% for 2011, we believe a more accurate figure is 4%, which is not bad for a transition year”, Mantega told Brazilian Senators.

He also recalled that the Brazilian government in the last months has been adopting a package of measures geared to avoid an over-heating of the economy, which also contributes to contract activity and the forecasted GDP.

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