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					HOW DOES BRAZIL FACE THE GLOBAL CRISIS:
SHORT-TERM AND MEDIUM-TERM CHALLENGES


               São Paulo, 30 de Novembro de 2009
                                                   Rua Joaquim Nabuco, 708, Graças
                                                          Recife/PE CEP 52011-000
                                                               Fone: 081 3222 1872
ABSTRACT

The author presents the reasons in which Brazil has been doing
much better than expected by confronting the international financial
crisis.
Among the reasons given by the author, some of them may be
considered significant, such as:

A solid Financial System, both public and private;
Public Accounts in order with high primary surplus past eight years;
High Exchange Reserves;
Relatively Low Foreign Economic Deregulation;
GDP structured 65% in domestic consumption;
High Import Capacity ;
Political Stability;
Key Words: Financial system, primary surplus, exchange reserves,
Gross Domestic Product, monetary stability.
                                                        Rua Joaquim Nabuco, 708, Graças
                                                               Recife/PE CEP 52011-000
                                                                    Fone: 081 3222 1872
INTRODUCTION

Brazil is getting out much better of the international financial crisis than we
could expect. In fact, Brazilian macroeconomic performance has been
acknowledged not only by G-20, but also by multilateral organizations
such as International Monetary Fund – IMF, International Bank for
Reconstruction and Development – IBRD, also known as the World Bank.

But, what reasons would enable Brazil to get out of this crisis more quickly
and effectively than expected?

The answer to this question takes into account macroeconomic factors
that already existed a long time ago and may be analyzed as follows,
without taking into account a chronological order or importance among
them. They are:

                                                                 Rua Joaquim Nabuco, 708, Graças
                                                                        Recife/PE CEP 52011-000
                                                                             Fone: 081 3222 1872
a)   Solid Financial System, both public and private

Long before the current government, still during the President Fernando
Henrique Cardoso’s management, two big plans for recovery of Brazilian
financial system were organized: PROER and PROES.

The first one (PROER) was for private banks and promoted banks mergers
and acquisitions, the time when the monetary authority, in that case, Central
Bank of Brazil intervened by closing private banks that did not have
conditions to survive any longer a market where the monthly inflation rate
was less than seven per cent.

The second one (PROES) was for state public banks and promoted a complete
reorganization of a banking system which wouldn’t have any chance to survive an
inflationary scenario less than nineteen per cent (19%) a month.

Those two extremely hard interventions taken by Central Bank of Brazil strengthened
all the national financial system, putting it on the route of a high profitability, without
any need to use spurious mechanisms such as American subprime as a way to get
more profits. This was really one of the main factors that would enable Brazil to move
off the international banking crisis.

                                                                           Rua Joaquim Nabuco, 708, Graças
                                                                                  Recife/PE CEP 52011-000
                                                                                       Fone: 081 3222 1872
b) Monetary Stability

Brazil was the only country in the world to live a systematic and
long-term with hyper inflationary process. In order to survive this
process, our country adopted the Institute restatement, utilized for
both incomes policy and pricing.

The restatement fueled inflation rate. Beating inflation meant ending
the indexation of the economy. This happened from July 1, 1994 on.
In a gradual way Brazilian inflation became one of the lowest in the
world.
Well, this stability can be considered a key factor in the defeat of the
economic crisis in the short term, by Brazil.


                                                            Rua Joaquim Nabuco, 708, Graças
                                                                   Recife/PE CEP 52011-000
                                                                        Fone: 081 3222 1872
c) Public accounting with Primary surplus

For eight consecutive years, Brazil has managed to
control public spending in such a way that created a
strong primary surplus, which was used to pay part of
the interest account of domestic public debt and reduced
the need for primary issuance currency. In 2009, public
spending increased again and the federal government
has been warned of this policy future risks.



                                              Rua Joaquim Nabuco, 708, Graças
                                                     Recife/PE CEP 52011-000
                                                          Fone: 081 3222 1872
–   c) Public accounting with Primary surplus
–   For eight consecutive years, Brazil has managed to control
    public spending in such a way that created a strong primary
    surplus, which was used to pay part of the interest account of
    domestic public debt and reduced the need for primary issuance
    currency. In 2009, public spending increased again and the
    federal government has been warned of this policy future risks.

–   d) High Foreign Exchange Reserves
–   Brazilian foreign exchange reserves are at very high levels,
    moreover, ever wondered. Currently such reserves shall be
    placed around US$ 230 to US$ 240 billion. Reservations at this
    level protect our country from any risk of speculative attack from
    abroad to Real.



                                                          Rua Joaquim Nabuco, 708, Graças
                                                                 Recife/PE CEP 52011-000
                                                                      Fone: 081 3222 1872
c) Public accounting with Primary surplus

For eight consecutive years, Brazil has managed to control public
spending in such a way that created a strong primary surplus, which
was used to pay part of the interest account of domestic public debt
and reduced the need for primary issuance currency. In 2009, public
spending increased again and the federal government has been
warned of this policy future risks.

d) High Foreign Exchange Reserves

Brazilian foreign exchange reserves are at very high levels,
moreover, ever wondered. Currently such reserves shall be placed
around US$ 230 to US$ 240 billion. Reservations at this level protect
our country from any risk of speculative attack from abroad to Real.

                                                         Rua Joaquim Nabuco, 708, Graças
                                                                Recife/PE CEP 52011-000
                                                                     Fone: 081 3222 1872
e) Domestic GDP

Estimates indicate that the Brazilian Gross National Product is sixty
five percent structured in the domestic market. As people's income
has not decreased in Brazil during the crisis, the consumption
industrial production was directed to our market, keeping a certain
level of GDP, but much less than might be expected, if the crisis had
not reached Brazil.

f) Low Foreign Economic Deregulation

One negative point (low foreign economic deregulation) became
positive in this crisis. For being less dependent on foreign trade and
domestic industry producing a wide range of products, and rely on
the domestic market, Brazil has not being that impacted by
decreasing of our exports.


                                                          Rua Joaquim Nabuco, 708, Graças
                                                                 Recife/PE CEP 52011-000
                                                                      Fone: 081 3222 1872
g) High Import Capacity

The balances in the balance of trade, although smaller in the last two
years, they still allow Brazil a good level regarding to import
capacity. In addition, the dollar down , on one side it made a loss to
the export sector it allowed to buy larger quantities of raw materials,
and machinery and equipment at lower prices.

h) Political stability

The strengthening of the Brazilian democratic process that has
lasted twenty-five years, allowed our country a political stability that
has direct impact on the economy. Government changes and
ministers give up no longer has any effect on markets and economic
activity in Brazil.

                                                           Rua Joaquim Nabuco, 708, Graças
                                                                  Recife/PE CEP 52011-000
                                                                       Fone: 081 3222 1872
The eight factors above do not exhaust the issues
involved in the process of facing the financial crisis
by Brazil, by all means; they were fundamental so that
the country overcame this crisis in a lighter and
quicker way. These are noticing and no anti-cyclical
policies and represent over the past fifteen years the
short and medium term challenges for Brazilian
society.




                                            Rua Joaquim Nabuco, 708, Graças
                                                   Recife/PE CEP 52011-000
                                                        Fone: 081 3222 1872
Conclusão




             Rua Joaquim Nabuco, 708, Graças
                    Recife/PE CEP 52011-000
                         Fone: 081 3222 1872
HOW DOES BRAZIL FACE THE GLOBAL CRISIS: SHORT-TERM AND
              MEDIUM-TERM CHALLENGES



        São Paulo, 30 de Novembro de 2009.


        JOSUÉ SOUTO MAIOR MUSSALÉM



                                              Rua Joaquim Nabuco, 708, Graças
                                                     Recife/PE CEP 52011-000
                                                          Fone: 081 3222 1872

				
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