Estela Lutero
Although crisis has begun in the United States and Europe at the end of 2007, until September 2008, Brazil was not touched. In the third trimester of 2008, the Brazilian GDP had increased 6.8%. But with the fallen of the Lehman Brothers, that caused a gradual hold of the world financial system; there was a drastic effect on credit. In Brazil, 19% of the credit had foreign sources. The collapse of those lines irradiated a chain effect, thus restricting the credits for production. At the same time, national banks were also having a hard time to get money abroad. Adding all of these, domestically Brazilians felt the credit crunch, for instance while financing automobiles. Inside, the recession process was a little different from elsewhere, because, in Brazil the retraction was being pulled by the industrial sector. So keeping the positive expectations of the entrepreneurs would be a good solution. And the government was aware of that.
In a self-fulfilling prophecy, Lula, president of Brazil, stated on October 4, 2008: “There [in the USA], the crisis is a tsunami. Here, if it reaches us, it will be a marolinha (high wave), not even good enough for surfing.”
Lula’s words were well supported by the wealthy financial situation Brazil was building. Brazil got into the crisis with resources. Recent macroeconomic policies have insulated the economy from external shocks. There were U$ 205 billion in international reserves. Moreover, the domestic demand was increasing 9% yearly. The investment rate was also growing. Inflation was stabilized. And very important: a wealthy and solid financial system. The Brazilian Government did not have to spend a penny to rescue banks , as it happened in other countries.
Some investment programs were also important such as the Program for Accelerated Growth (or PAC) which was not scaled back. The PAC came into being in January 2008 and is a public-private infrastructure program with US$283.3M being invested primarily in energy projects up until 2010. Additionally, The BNDES, the Brazilian Development Bank adopted a very aggressive attitude toward credit concession in order to protect production against the impacts of the global financial crisis.
The results came soon, after two trimesters of GDP fall, GDP showed an increase of 1.9% in the second trimester of 2009 - manufacturing sector, with an increase of +2.1%, and services +1.2%. For 2010, Brazilian government is betting that the GDP will go up by 5% in 2010.
Moreover, with some recent events, it is easy to foreseen that the optimist wave is here to stay. The world cup in 2014, the Olympic games in 2016 and sub-salt prospects (petroleum) will definitely stretch the positive environment. These events have brought positive prospects for the infrastructure, industrial and service sectors and have placed Brazil among the world’s biggest players.
In the long-run the subset reserves alone are expected to generate a turnover of US$440 billion in terms of technological development, increase in industrial capacity, construction of shipyards and job creation.
Meanwhile, the World Cup and the Olympic Games will lead to the construction of new sports venues and improve the transport and telecommunications infrastructure, the electricity supply and security, health, hotel and tourism services.
According to a study commissioned by the Brazilian government to calculate the economic impact of the Olympic and Paralympic Games on Rio de Janeiro, based on an investment estimate of US$14.4 billion the events are expected to generate a turnover of US$51.1 billion, 120,000 direct and indirect jobs a year in the period leading up to the games and 130,000 jobs a year afterwards.
Along with the favoring conjuncture mentioned here, there are many other structural reasons for Brazil to keep its optimism, such as: its strong domestic market growing in purchase power and proportionate to the population; largest food exporter in the world ensuring foreign market sales on a significant scale under any scenario; and its diversified foreign market with buyers in the whole world, while exports of goods and services with added value are growing.
This is no doubt that Brazil's growth expectation for 2010 of 5% of GDP is highly likely.
Estela Lutero is Master in Economics (Universidade Estadual de Campinas). She is Senior Project Manager at Auctus and Infrastructure Economics Consultant in Brazil. Contact mail: estelalutero@hotmail.com
