December 13, 2009
The Effects of the World Crisis on the Brazilian Economy
The world economic crisis, caused by the downturn of the real estate and credit market in the U.S, have two main impacts on the Brazilian economy, which are intertwined with each other. The first one is appointed to be the financial market, dueto the deregulation of the capital account of the Brazilian balance of payments, which give extreme freedom to the capital flow used to buying and selling stock, bonds, and other kinds of investments.
On the financial market, the impacts have been immediate and severe: the collapse of the stock market, increase on the Brazilian “risk”, and the depreciation of the currency (“Real”). Accordingto Luiz Filgueiras, an economist from Brazil, this was due to “intense selling of Brazilian shares (stocks, government bonds, and other company shares) by investment funds, with the objective of compensating the losses on the American market and European, as well as aiming to get more security on the U.S government bonds” (“The Effects of the World Crisis on the Brazilian Economy”).
In addition,the decrease of the liquidity of the international financial markets has been causing the increase of the price of external refinancing for the Brazilian companies, as well as the reduction of credit on the Brazilian economy (for exporters, agriculture, minor banks, and consumption of durable goods). Aggravating the situation, exporter companies have been having increasing losses on the currencymarket, on operations with hedging.
Due to the transformation of the financial crisis in general economic crisis, especially with the lack of control of the capital flow, the capital loss tends to increase, even though the Brazilian government accumulated a reserve of US$ 200 billions, which substantially decreased the country’s external vulnerability. However, the reason for the capital losswon’t depend mainly on the so called “economic principles”: inflation control, public debt tracking, and so far. According to Filgueiras, “the main reason will be, as it happened on the past, the dynamics of financial speculation. This means that the increasing aversion for risk is going to cause the goal for more security by the acquisition of shares of the American government” (“The Effects ofthe World Crisis on the Brazilian Economy”).
This new reality has been causing the demoralization of the liberal speech in the whole world, with the Government “showing up”, as it is normal on the moments of consequential capitalism crisis, as a “hero” and a salvation for the country’s financial problems. Even though, Filgueiras admits that “there is not any proof that the U.S bailout package andstimulus plan of US$ 850 billions (roughly 6% of the U.S GPD) for the purchase of subprime mortgages in the hands of private financial institutions, which was approved by the U.S Congress, is going to solve the financial crisis in the short-term.” Moreover, it can be hard for it to stop the diffusion and the deepness of the crisis to the other countries around the world. This is it mainly becauseof the amplitude and substantiality of the deregulation and liberalization of the financial markets occurred in the last 30 year, as well as the lateness of the U.S Central Bank to intervene with the right tools—because the initial idea was that the crisis was based on liquidity, and not on solvency, as it was concluded.
In Brazil, the aggravation of the crisis obligated the government tochange the speech of Brazilian economy “independency” towards the U.S, making the Brazilian Central Bank to take the some actions. First, bids to sell dollars with the clause of re-buying, the sell of reserves dollars, and the sell of dollars on the future market. Second, successive reductions on compulsory deposits were made. Third, a provisory law allows “Banco do Brasil” (“Brazilian Bank”) and...