Brazil and the Global Financial Crisis - Parte Dois

In the last post I posted a link to a NY Times article that described how Latin American countries, including Brazil, aren't immune to the financial plague that's spread out from Wall Street. The Brazilian real went from around 1.75 to the dollar to nearly 2.50 to the dollar in the course of a couple weeks. It has since stabilized at around 2.10 - 2.15 to the dollar in recent days, which, according to my limited economic knowledge, probably actually sits pretty well with exporters of Brazilian commodities - high enough to drive down the price of their products, not so high as to preclude returns on past investments. Access to credit, however, will still be hard to come by, as firms around the world are finding out.

So no, Brazil, like pretty much everyone, won't escape this crisis unscathed. Yet compared to most countries, Brazil, it seems, should weather the storm fairly well. In the latest weekly issue of Istoé magazine, a quote from the Director General of the International Monetary Fund, Dominique Strauss-Kahnn, received some considerable attention. "In 2009," he said (and this is my translation from Portuguese), "developed countries will grow near 0%; in other words, 100% of growth will come from developing countries and countries with little wealth." The IMF predicted Brazil will grow 3.5% in '09. Certainly a modest prospect, though nothing like China's projected 9.3% or India's 6.9% growth. 2009 growth for the United States will be around 0.8%, with the Eurozone economy growing an equally paltry 0.7%, according to the IMF.

Why is Brazil sitting so pretty? Istoé highlights a few reasons:

• Stricter banking regulation, and banks that have recently proven themselves three times more profitable than U.S. banks
  
• A reserve of $200 billion, which the Brazilian government can use to ease credit concerns for some of the country's larger indebted firms, as well as guarantee national foreign debt
  
• An agricultural export economy that will see little drop in demand for coffee, soybeans, ethanol, and orange juice from markets in Europe and Asia
  
• A robust domestic economy on which to prop the country up if the export market goes lean, and a booming consumer market that's starting to attract the attention of foreign investors
  
• An ever-diversifying industrial sector, manufacturing everything from flex-fuel cars to regional jets to laptops to feed the high domestic demand for consumer goods
  

Add to that the fact that Brazil is almost energy independent (and will probably become a petroleum exporting country by the time newly discovered off-shore reserves are tapped in the next decade) and one sees a country ready to face the fiercest of economic storms.

A week-and-a-half ago, President Bush got on the red phone to Presidente Lula and asked that the G-20 (the group, led by Brazil, that represents the world's 19 wealthiest nations plus the whole of the European Union) convene for an emergency summit in Washington immediately after a similar meeting by the G-7. Oh how the tables have turned. Now Brazilian Finance Minister Guido Mantega would come to Washington with $20 billion dollars to offer to inject into gasping credit markets, unlike predecessors who showed up at the thrown of the Empire on their knees.

It's no wonder that Lula has an air of Chicken Little about him: "It's their crisis," he said earlier this month.