Tuesday 06 January
2009, San José, Costa
Rica
ECONOMY-BRAZIL:
An Island in Stormy
Waters
By Mario Osava
RIO DE JANEIRO (IPS) -
Brazil is not immune to
the current global
financial crisis, but
there are many
indications that it will
remain largely safe from
the recession shaking
the world’s rich
countries and that
economic growth will
stay at reasonable
levels if the meltdown
is neither deeper nor
longer than expected.
The slowdown will be
reflected in GDP growth,
which is projected at
2.4 percent by
conservative financial
analysts or 3.2 percent
by the Central Bank,
which differs with
Brazilian President Luiz
Inácio Lula da Silva’s
optimistic "goal, not
forecast," of four
percent.
That is a sharp fall
from the 2008 growth
rate, estimated at 5.6
percent by the Central
Bank. In the first three
quarters of last year,
growth stood at 6.4
percent, but figures
from the last quarter
showed that the effects
of the crisis were felt
by Latin America’s
giant.
Production of motor
vehicles, for example,
fell 34.4 percent from
October to November, and
the November figure was
28.6 percent down from
the same month in 2007.
High-value durable goods
have been hit hardest by
the crisis, because
sales depend almost
completely on credit,
which suddenly dried up.
The government attempted
to boost sales with a
Dec. 11 decree that
freed up credit and
reduced taxes on
purchases of smaller
cars, which initially
extended the effects of
the crisis to the used
car industry. President
Lula has promised to
announce new bailout
measures on Jan. 20,
which will also apply to
other sectors like
construction and
agriculture.
In November, 40,800
formal sector jobs were
lost in Brazil,
according to the Labour
Ministry -- the first
negative figure for the
month of November in the
six years since Lula
took office. New jobs
are usually generated in
November as a result of
the pre-end-of-the-year
holiday rise in
consumption.
Analysts predict that
unemployment will
continue to go up in
2009 if economic growth
dips below three
percent. That could
bring down Lula’s
extremely high
popularity ratings,
which stood at 80
percent in mid-December
in spite of the crisis.
The question of making
labour laws more
flexible has once again
been brought up as a
result of pressure from
business, which proposes
greater flexibility for
hiring and firing as a
means of keeping the
number of dismissals
down. The trade unions’
rejection of such a
proposal could be
weakened if the prospect
of mass layoffs looms.
The government, in which
the president himself
and many officials are
former trade unionists,
is in favour of
negotiations.
The crisis has cast into
relief a key aspect in
which Brazil differs
from other nations.
While central banks
around the world have
slashed interest rates,
almost to zero in the
case of many
industrialised
countries, the Brazilian
Central Bank has kept
its benchmark rate at
13.75 percent,
considered the highest
in the world in real
terms.
The fear is that the
more than 30 percent
devaluation of the local
currency, the real,
since August will be
transferred to prices,
driving up inflation,
which is estimated at
six percent for 2008.
But critics of the
Central Bank argue that
this effect would be
offset by the major drop
in international prices
of food, oil and other
commodities.
The Central Bank, known
for its conservative
policies, has also come
under growing fire for
the extreme volatility
of the exchange rate,
which has gone from 1.5
reals to the dollar in
early August to 2.5, and
back to 2.3, with sharp
day-to-day swings.
The depreciation of the
real, however, corrects
the exaggerated
overvaluation of the
last few years, which
has hurt exports,
especially of
industrialised products.
The drop in exports as a
result of the crisis
will be partially
compensated by higher
returns in reals, at
least for companies.
The impact of the
slowdown in foreign
trade should not be too
heavy for Brazil, since
its export markets are
diversified, and because
it exports many food
products, which are
generally hurt less by
the reduction in
imports.
Despite the grimmer
outlook for 2009,
Brazilians are
celebrating the end of
an excellent year in
economic terms, one of
the best in three
decades. Besides strong
growth and the
generation of nearly two
million new formal
sector jobs, the
discovery of enormous
offshore oil reserves,
which could turn the
country into a major oil
producer, was announced
in May.
Although the cost of
extracting the subsalt
oil will be high, and
the recent plunge in oil
prices tends to postpone
production plans, there
is little concern,
because the deposits are
seen as a guarantee for
the future, which will
not become reality for
some years, thus giving
Brazilians time to
discuss how best to use
the newfound oil wealth. |
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