Aspectos Monetarios Prof. U.Mummert Rodrigo Guajardo O. 16611484-5
[FINANCIAL CRISIS IN EMERGING COUNTRIES, BRAZIL KEYNESIAN RESPONSE]
This report will analyze the effect of the global financial crisis of 2008 in the emerging Brazilian economy and how it was able to mitigate its effects through expansionary monetary and fiscal policy. It demonstrates that through these policies, Brazilwas one of the few economies in the world that came into small run recessive and in turn, was a pioneer in return to the path of growth.
In mid 2008, the United States and the world at large, went into a deep financial crisis driven by the increasing gap in the mortgage sector of the North American country. The blow to the liquidity of financial institutions led to theinability to meet in short and medium obligation terms resulting in a wave of panic around the world. The hard cut to the liquidity was triggered by a financial bubble caused by the boom in subprime loans given the prevailing low interest rates since the attack on the Twin Towers in September 2001. For the year 2006, subprime loans reached U.S. $ 600,000 million. The high profitability in these types ofloans was mainly driven by the steady increase in the price of residential housing in addition to the attractive differential between active and passive interest rate. The regrouping of these loans and selling them as financial instruments that allow investors around the world to participate in the business. The problem arises when the U.S. Federal Reserve (Fed) starts to raise interest rates toinflationary pressures. The higher cost of credit had a negative impact on current mortgage payments which resulted in lower levels of capitalization of financial institutions (Machinea, 2009). Given the increased uncertainty and reduced mortgage lending, housing prices plummeted causing irreversible losses in many banks and financial institutions, triggering the bankruptcy of them. The result wasone of the worst financial crisis since the Great Depression in 1929.
This crisis is studied for many economists around the world due to high interest in tracing their origins and their effects on different economies of our planet. This paper studies the impact of the global financial crisis on the Brazilian economy and how it was able to overcome through good management of monetary and fiscalpolicy.
At first, we will place in the context of Brazil at the time of onset of the crisis. In Section II we analyze the effects of the crisis by looking at macroeconomic variables such as domestic product, unemployment, inflation and exchange rate. In Section III briefly
discuss the behavior of Brazilian financial markets during the development of the crisis. Section IV will discuss atlength the various uses of economic policy by the central government to cushion the effects of the crisis and prosecute the country back on high growth rates.
Brazil is Latin America's biggest economy, in 2007 it GDP was U.S. $ 1,800 billion. The population in 2008 stood at 190 million and its per capita income was $ 9,700 1. During the period 2000-07, Brazil grew atan annual average of 3.31% supported by high commodity prices and growing exports. On the other hand, during the same period, its inflation was 7.2% annual average (Paiva, 2009).
In addition to the transmission routes that represent financial flows, trade links involved a potential channel of contagion for countries with a large array of exports and imports relative to the product. During theperiod 2000-06, Brazilian exports grew at an 10% average per year while imports grew 4% at the same period. By 2006, exports and imports accounted 26.4% of GDP in Brazil.
In relation to exports, 49.8% were manufacturing, 19.2% for raw materials and 28.8% agricultural products. An important fact to consider is that of total exports, the U.S. accounts for 15.2% of total exports (Amador, Reyes...