Posts Tagged ‘Brazil’

China’s trade with Brazil

Tuesday, April 3rd, 2012

[Brazil purchases] a flood of cheap manufactured imports from China. Beijing, in turn, buys few Brazilian products other than commodities such as iron ore.

But wait. It seems China has finally thrown Brazil a bone. It plans to buy 300,000 Brazilian donkeys a year from the poor north-east. The locals no longer need the animals, a regional icon affectionately known as jumentos, now that they can access credit to buy motorbikes instead.

Unfortunately, this hardly promises to be a value-added business. The unlucky animals will be ground up to become an ingredient in China’s food and cosmetics industry.

Donkey work“, Notebook, Financial Times, 3 April 2012.

avoiding economic bust in Brazil

Friday, July 8th, 2011

How might Brazil keep its economy moving? A Financial Times editorialist explores the options.

Brazil’s economy is like a bicycle. It works so long as it keeps moving. This has been easy over the past decade. High commodity prices have boosted the value of Brazilian exports. Ample credit has meanwhile kept the domestic economy zooming. Now, however, the cycling is getting harder. ….

One way for the Brazilian bicycle to keep moving is to get the exchange rate down. But Brazil has already tried partial capital controls and massive currency intervention; neither have worked. Another is to cool internal demand by cutting wasteful government spending: Brazil should be running budget surpluses now instead of deficits. But getting spending cuts through Congress has proved very hard. A third alternative is to raise taxes on the commodity sector.

There is no easy solution. Even better-run, commodity-rich economies, such as Chile or Australia, are suffering. But in Brazil the problems are writ larger because its economy is so much bigger. The Brazilian bicycle is not yet in danger of stopping. But it is wobbling.

Brazil’s currency war wounds“, Financial Times, 8 July 2011.

The editorialist fails to mention this, but – because of lax border controls – the third alternative is also very difficult. Brazilian exporters evaded taxes and exchange controls in the past by shipping huge quantities of coffee and soybeans illegally via Paraguay. Unless its system of tax collection improves, along with better control of spending, Brazil could return to a traditional ‘stop-go’ pattern of growth and inflation. That would be tragic. Hopefully, Brazil can get its fiscal house in order in time to avert an economic disaster.

Brazil’s coming economic bust

Tuesday, July 5th, 2011

Brazil’s currency, fuelled by capital inflows, is trading at a 12-year high against the dollar. The strong real reduces the competitiveness of the country’s manufacturing sector and is a major headache for President Dilma Rousseff.

Brazil’s rapid economic growth and high real interest rates at nearly 6 per cent make its markets a powerful draw for foreign investors starved of investment opportunities in developed markets.

“US interest rates are near zero, UK interest rates are near zero, Japanese rates are near zero and Brazilian rates are 12.25 per cent – I would say that’s the crux of the matter,” said Neil Shearing of Capital Economics in London.

Joe Leahy, “Brazil fears economic fallout as real soars“, Financial Times, 2 July 2011.

Equally troubling for Brazil’s economy is the huge amount of outstanding consumer debt serviced at interest rates that average 47%. That is not a typo: consumer interest rates on average are currently 47%, while the benchmark interest rate is 12.25% and annual inflation is about 6%. Two hedge fund managers, writing in the Financial Times, call attention to this “astronomical and rising” consumer debt burden.

The consumer debt service burden, which stood at 24 per cent of disposable income in 2010, is now slated to rise to 28 per cent in 2011. ….

We calculate that the debt service burden for the so-called “middle class” in Brazil has now breached 50 per cent of disposable income, as high income earners have little need to borrow at rates which are punitive and most of the consumer credit is therefore being directed to the “middle class” for consumption.

The strain is already evident among the smaller banks, which are finding it difficult to access funding. The central bank has now rescued or taken over three banks in distress over the past six months.

Meanwhile, delinquencies in Brazil (defaults in excess of 15 days) have begun to move up rapidly, from 7.8 per cent to 9.1 per cent of total loans between December 2010 and May 2011. Delinquencies are now rising at a very hectic rate. They have risen at 23 per cent in the first five months of this year in absolute terms or at an annualised rate of 55 per cent.

Paul Marshall and Amit Rajpal, “Brazil risks tumbling from boom to bust“, Financial Times, 5 July 2011.


Tuesday, September 28th, 2010

Next week, Luiz Inácio Lula da Silva retires after eight years as President of Brazil, with an approval rating of about 80%. FT columnist Gideon Rachman examines the man and the myth.

Lula was one of eight children in a poor family from one of the remotest regions of Brazil. He left school early, worked as a shoeshine boy and then as a lathe operator before becoming a militant trade-union leader. He was briefly imprisoned under Brazil’s military dictatorship. His first wife died young, while pregnant. But Lula triumphed over the odds to become “the poor boy who came from a shack to be president of Brazil”. ….

The foundations of the country’s economic success were laid by the reforms of his predecessor, Fernando Henrique Cardoso. One of Lula’s biggest economic contributions was simply not to mess things up – and this was achieved by the abandonment of the far-left policies that he had once advocated. It is true that Lula inherited a fiscal crisis and handled it with determination and aplomb. But much of the subsequent economic boom was down to the lucky fact of a global commodities boom, powered by Chinese demand. Lula has gained deserved credit for his anti-poverty policies. He has done less well in fighting corruption.

Gideon Rachman, “The realities behind the cult of Lula”, Financial Times, 28 September 2010.

“They’re not submissive any more.”

Saturday, September 25th, 2010

The guest at this week’s “lunch with the Financial Times” is Fernando Henrique Cardoso, the famous sociologist who was president of Brazil from 1995 to 2002. He is a slim man who “looks far younger than he should at nearly 80”. Predictably, and in my opinion correctly, FHC argues that it was his reforms that made possible the election of his popular successor, Luiz Inácio Lula da Silva, known as “Lula”. Here are some highlights from the interview.

[W]hat next [for Brazil], I ask.

“The big thing is quality,” he begins. “We’ve spent all our lives worrying about quantity – whether GDP grows or not. Now the question is quality. What kind of education is this? The main reason children skip school is no longer economic. It’s because they’ve lost interest. There’s no point. The quality of teaching is awful.

“We need a new wave of reforms,” Cardoso continues. …. “In a way, Lula has anaesthetised Brazil. We have forgotten that Brazil needs to keep advancing. What I managed to do moved the country forward. But then it stopped. Just stopped.” …,

“The opposition got it wrong. We allowed the mythification of Lula. But Lula is no revolutionary. He rose from the working class and behaves as if he’s part of the old conservative elite.” ….

I ask, why do Brazilians complain so little, given rising crime, high violence, and persistent inequality? Cardoso thinks this is changing.

He describes field trips as a sociologist he once made into favelas and factories, when the poor would step aside out of respect for the men in suits and ties. “Not today,” he says. “People used to be afraid even to talk to you. Not now. There’s a bad side, of course, in the violence, but there’s a good side too. They’re thinking, what is this guy doing here, who doesn’t belong? They’re not submissive any more.”

Jonathan Wheatley, “Lunch with the FT: Fernando Henrique Cardoso”, Financial Times, 25 September 2010.

For more on Fernando Henrique Cardoso, click here.