How is this for bullish? The Olympics in Brazil will be better than the Olympics in Beijing.
Or so says Paolo Soares, Brazil's ambassador to Singapore and a panellist at yesterday’s Brazil Investment Summit, hosted by FinanceAsia and AsianInvestor.
His enthusiasm was perhaps a touch advertorial -- though to be fair Brazil will be the first country to host the football World Cup (2014) and the Olympic Games (2016) in a single cycle. And the exuberance for Brazil was backed up by data presented by Luiz Awazu Pereira da Silva, the deputy governor of the Banco Central do Brasil.
Pereira da Silva outlined the central bank’s three-pronged approach to keeping the economy on track and making Brazil an attractive investment destination. The plan is to control inflation, ensure fiscal responsibility and maintain a floating exchange rate regime.
“I don’t think we wished for such a test as the financial crisis, but nevertheless we were tested and Brazil did well,” Pereira da Silva said. “Contrary to Europe or the US, there were no bankruptcies and no need for government bailouts of financial institutions.”
Indeed, thanks to the country’s ability to build a comfortable level of foreign reserves, it had a net creditor position to the public sector during the crisis.
Its real market interest rates have declined during the past six years, and now stand at a record low of 6.15%. Together with improved macro fundamentals and microeconomic reforms in consumer credit and housing finance, this has triggered a structural change in credit in Brazil, which grew from around 25% of GDP to above 46% in less than eight years.
Given access to credit, it should come as no surprise that more of Brazil’s businesses have grown and are export-oriented. In 1980, Brazil boasted about $25 billion worth of annual exports. This year, that figure is closer to $150 billion and is forecast to break $200 billion by 2012.
Not only have exports steadily grown, they are well-balanced, and thus positioned to withstand global downturns in any one particular area (as best as one could). For example, the US accounts for 10.3% of its exports, while Europe takes up 22.2%. And while those economies are currently struggling, exports to China, which accounts for 13.7% of the total, and the rest of Asia, at 12.6%, continue to support the economy. Brazil also exports within Latin America.
All of this has led to steady job creation. There have been 14.3 million jobs created since 2003, and unemployment has dropped to a historic record low of 6.2% -- half of what it was seven years ago.
This is helping to create a middle class, defined as people earning $2,500 per month. As of June 2009, 53.2% of the population fell into this category, a 10% increase from 2002. And there has been a 17.45% growth in GDP per capita.
So Brazil is a success story right now. But if you’ve read a single Bric (Brazil, Russia, India and China) report you would know this. So what’s the forecast for the next few years?
Pereira da Silva noted that the recent financial crisis proved that Brazil will act swiftly in the face of crisis, but at the same time carefully. For now, the focus is on keeping inflation in check and avoiding excess credit growth. A possible speed bump is that foreign exchange valuations do not appear to be correlated to fundamentals, but rather are impacted by external forces outside of Brazil’s control (such as the US’s quantitative easing policy and crises in Europe). For more on Pareira da Silva's views on FX policy, please see the Brazil Investment Summit story on the AsianInvestor website today.
Pereira da Silva also noted that the government is aware that the quality of public spending needs to be improved, that there needs to be more investing in infrastructure, as well as improvements in the legal and tax environment. And further, the nation as a whole needs to increase its domestic savings. While that might sound daunting, knowing the weak spots is half the battle.
So in sum he said: “Expect during the next four years a sustainable growth path with very sound macro-policies”. This, of course, is precisely what investors want to hear at an investment summit.
