The China Temptation

Jaime Daremblum – Hudson Institute, 8/10/2012

What a difference a year makes.

In August 2011, as the European debt crisis raised fears of another international financial panic, Brazilian officials were bragging about their country’s impressive economic strength and record-low unemployment rate. ”This is the second time that a crisis affects the world,” said President Dilma Rousseff, “and it is the second time that Brazil doesn’t shake.” The perception of Brazil as a booming economy that was insulated from the global turmoil had prompted an influx of foreign businessmen hoping to get rich (or richer). “If the rest of the world is cratering,” a Rio-based American banker told the New York Times, ”this is a good place to be.”

In August 2012, amid a slowdown in China and other developing countries, Brazil is teetering on the brink of recession, largely because of an overvalued currency and sluggish exports. Its economy barely grew at all (0.2 percent) in the first quarter of this year, and its persistent weaknesses have suddenly been magnified. Even the Brazilian services sector, which had been buoying the economy, is now slumping: Its activity index (as measured by the financial giant HSBC) hit a three-year low in July. As for Brazilian industrial production (approximately one-third of the national economy), it has “failed to respond to government stimulus measures and a series of aggressive interest rate cuts,” notes the Wall Street Journal. Writing in the Miami Herald last week, Latin America expert Susan Kaufman Purcell declared that “Brazil’s economic future does not look nearly as bright as its recent past.” Indeed, while unemployment remains relatively low (for now), Brazil is no longer seen as an unstoppable economic powerhouse.

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Brazil raises G20 stakes on IMF funding pledge

Luciana Otoni and Krista Hughes – Reuters, 06/13/2012

(Reuters) – Brazil raised the stakes ahead of next week’s Group of 20 summit on Tuesday by saying it may cap its contribution to a planned funding increase for the International Monetary Fund unless there are firm promises to give emerging markets more say at the international table.

While summit-host Mexico urged Europe to quickly finalize details of aid for Spain’s banks, Brazil said it might contribute less than it had planned to the extra $430 billion promised to the IMF by member states in April to help fund heavily indebted euro zone countries.

The euro zone sovereign debt crisis is set to dominate the June 18-19 G20 leaders’ meeting in Los Cabos as it did the last summit in Cannes, France, six months ago. The meeting starts a day after Greek elections which could decide whether the country stays in the euro zone.

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Brazil stocks close lower on Europe worries, Chinese data

Luciana Magalhaes - The Wall Street Journal/Dow Jones Newswires, 05/24/2012

SAO PAULO (Dow Jones)–Brazil’s stocks closed sharply lower on Thursday on continued worries about the future of Greece as a member of the euro zone. A preliminary reading showing manufacturing activity in China shrank further in May has also weighted on the Brazilian stock market.

Brazil’s benchmark Ibovespa index finished the session at 54,063 points, down 1.2% from Wednesday’s closing.

“The fall reflects a continuing risk aversion in the market. We are waiting to see what is going to happen in the euro zone,” said Joao Pedro Brugger, analyst at Brazil’s Leme Investimentos. “Besides, it didn’t help the fact the numbers on China today came below expectations,” he added. China’s demand expansion has been crucial for Brazil’s exports growth.

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Brazil becomes sixth biggest economy

Joe Leahy and Stefan Wagstyl – Financial Times, 03/06/2012

Brazil has overtaken the UK to become the world’s sixth-largest economy despite Latin America’s biggest growth engine sharply decelerating last year in its second worst performance in nearly a decade.

Gross domestic product expanded 2.7 per cent last year – about a third of the rate of 2010 and the lowest since 2003, with the economy stalling in the second half of the year amid efforts to control inflation and negative sentiment from the eurozone crisis.

“If the global crisis hadn’t worsened in the second quarter, our growth [for 2011] would have been closer to 4 per cent,” said Guido Mantega, finance minister.

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Brazil wants more IMF power for extra eurozone funds

BBC News, 02/27/2012

Brazil has said that developing nations would be happy to provide more money to ease the eurozone’s debt crisis, in return for more power within the International Monetary Fund (IMF).

The comments were made by Brazilian Finance Minister Guido Mantega as he met with his opposite numbers at a G20 meeting in Mexico.

He also called on eurozone countries to contribute more of their own funds.

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Latin America looks at West’s fiscal crises, and sees its own past

Simon Romero – New York Times, 01/27/2012

A subway station in São Paulo, Brazil, which has a thriving financial sector. Some analysts see the situation in the West as “Latin America, circa 1985.” Yasuyoshi Chiba/Agence France-Presse — Getty Images

RIO DE JANEIRO — Sometimes it comes in the form of a news dispatch, like the item from Milan explaining how Italians fret about “the spread,” a term used to refer to the gap between their high borrowing costs and the lower interest rates for Germany.

The angst has included protests in Spain, images of rioters in London or the police using pepper spray to disperse demonstrators in California.

And, of course, there is the steady drip of reports focusing on default fears in Greece.

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Brazil open to giving the IMF aid, but seeks backing on Fund reform

Gerald Jeffris – Dow Jones/NASDAQ, 01/18/2012

Brazil remains open to offering assistance to ailing economies through the International Monetary Fund, though it is seeking a political commitment to reforming the institution as part of the discussions, a government official familiar with the matter told Dow Jones Newswires Wednesday.

The statement comes after the IMF said it was seeking an additional $500 billion to $600 billion in resources to help fight the effects of the European debt crisis. Brazil and other large emerging-market governments such as China have been called upon to kick in resources for the effort.

“Brazil continues with a positive focus, in the sense of assuring that the IMF has the necessary resources,” the official said. “We understand that the format discussed at Cannes should remain in place.”

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Brazil cuts interest rates further to 10.5%

Joe Leahy – Financial Times, 01/19/2012

Brazil’s central bank has cut interest rates for the fourth time running as the government seeks to revive an economy that stalled in the second half of last year.

The 50-basis point cut in the central bank’s benchmark Selic rate to 10.5 per cent comes as Brazil’s development bank, which has a balance sheet four times the size of that of the World Bank, announced a reduction in lending last year in a move that should also aid efforts to ease rates.

“The monetary policy committee understands that to mitigate in a timely way the effects coming from a more restrictive global environment, a moderate adjustment in interest rates is consistent with the convergence of inflation to the target in 2012,” the central bank said.

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Brazil’s 2011 trade surplus highest in four years

Hector Velasco – AFP, 01/02/2012

View of the port in Rio de Janeiro in 2010 (AFP/File, Antonio Scorza)

Brazil’s 2011 trade surplus soared 47.8 percent to nearly $30 billion, compared with the previous year, the highest since 2007, with record exports and imports, official data showed Monday.

Last year, exports of goods rose 26.8 percent to $256 billion dollars while imports went up by 25.7 percent to $226 billion, the foreign trade ministry said.

“Brazil has never exported or imported so much. This is a sign of the dynamism of our foreign trade,” said Tatiana Prazeres, a spokeswoman for the ministry.

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Brazil real heads to biggest loss since ’08 on investment view

Josue Leonel and Andrea Jaramillo – Bloomberg, 12/29/2011

Brazil’s real fell, heading for its biggest yearly loss since 2008, amid speculation Europe’s sovereign debt crisis will continue to reduce foreign investment in Latin America’s biggest economy.

The real dropped 0.4 percent to 1.8814 per U.S. dollar at 10:20 a.m. in Sao Paulo, from 1.8736 yesterday. The currency has plunged 12 percent in the last 12 months, its first yearly drop since 2008 when it fell 26 percent. With markets closed tomorrow in Brazil, today is the last trading day of 2011.

Brazil recorded foreign-currency outflows of $2.1 billion from trade and investment this month, the central bank said yesterday, the third straight month capital left the country. The European Central Bank said yesterday its balance sheet soared to a record 2.73 trillion euros ($3.51 trillion) after lending to banks to ease a shortage of capital.

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