DELFIM NETTO, STIGLITZ SPEAK AT EXAME MAGAZINE SEMINAR ON 2009 OUTLOOK FOR BRAZIL

Delfim Netto is a widely-respected economist and Congressman who held a number of cabinet-level positions in Brasilia in the 1960s and 70s.

On Monday, May 11, he spoke at a conference held by Exame magazine, one of Brazil’s leading business publications, and made prognostications for the Brazilian economy throughout the rest of 2009.

• The Brazilian economy will resume growth “with some vigor” in Q4, but won’t see 4% growth until 2010.
• Brazil could have seen growth of 2% to 4% in 2009 if the Brazilian Central Bank had acted more decisively and in a more timely manner.
• The Brazilian Central Bank had the wherewithal to commit more resources to staving off the crisis because it was sitting on reserves of USD 200 billion; it was also extended a credit line of USD 30 billion by the US Fed.
• The Brazilian Central Bank has been correct in its initiatives, but has been seven months late and very conservative, declining to “use its muscle to force the economy to drop to 2%, 3% or even 4% growth”.
• The Brazilian Central Bank also erred in its preferential treatment of large banks over small ones, and of public institutions over private ones.
• The recent inflow of foreign capital into Bovespa, the Sao Paulo stock exchange, can be explained by the quality of the companies traded on the exchange and the likely capacity of the country to swiftly make its way out of the downturn. So far this year, Bovespa is up 36% in dollar terms. Net of taxes and fees, that figure represents a gain of 25% in a little over four months.
• The capital inflows have contributed to a sudden appreciation of the BRL, an event that may have a “devastating” impact on the productive system.

Joseph Stiglitz, recipient of the Nobel Memorial Prize in Economic Sciences, also spoke at the conference and stated that one of the positives originating from the crisis is that it will allow Brazil to lower its interest rate to a level closer to the global average. Mr. Netto joked that doing so is of little consolation at a time when the Brazilian economy went from an excellent situation to a much worse condition.

Mr. Netto summed up the points that will help Brazil decouple from the crisis:

• Brazil is the only BRIC country to have a functional constitutional democracy.
• Brazil has a single language and no border, ethnic, and religious problems.
• Brazil can produce a considerable amount of renewable energy and has enormous oil reserves.
• Brazil has a reduced likelihood of facing a crisis in its foreign accounts, as it has substantially reduced its debt-to-GDP ratio and its liabilities in foreign currencies; it also has large reserves in hard currencies.

The Exame article closes with a quote:

“We will probably not have an energy shortage or a crisis in the balance of payments. So Brazil will be able to get out of this crisis, will be able to build a concrete road, a German Autobahn for the next 25 years. But, without the State, that will not happen. The State has its problems, but must be intelligent enough to help the private sector go down this path.”