Latin Finance - September/October 2009 - 32

Brazil micro outlook it continue to build its portfolio when this happens? And will Brazil will do better than many had projected six months the government be willing or able to roll back other programs?” ago and there is more certainty about direction, agrees Albert Garman wonders. Fishlow, professor emeritus at the Columbia University school Fiscal revenue has fallen substantially and policy is becoming of international and public affairs. But while GDP forecasts are, an issue, as there is little room for more stimulus, agrees at least for the most part, on an upward march, no one is quite Goldfajn. High levels of current spending means there is not buying the pie-in-the-sky prediction of finance minister Guido enough space for investment either, he adds. Meanwhile, in Mantega, who expects as much as 2% expansion this year. A key driver of recovery is the use of counter-cyclical policy. April the government announced a lowering of the primary surplus target to 2.5% of GDP from 3.8%. This encompasses direct measures – including stimuli for The economic stimulus has been too focused on short-term car and durable goods purchases and a proposed reduction consumer goods and Brazil has missed a golden opportunity in payroll taxes – as well as a more determined intervention to address deep-seated investment needs, adds Fishlow. The in industrial policy. It is marked by a significant step-up in spending by the national development bank, BNDES, and state- investment rate in China is 45% and in India it is close to 30%, while in Brazil it has remained less than 20%, he says. “It’s oil company Petrobras. Petrobras announced plans in January difficult to see how you will grow at 4.5%-5.0% per annum with to increase long-term capital expenditure, investing $28.6 rates of investment that are so low,” he says. The government has billion in fiscal 2009 and $174.4 billion between fiscal 2009also failed to catalyze the private sector in 13, an increase of 55% over the previous infrastructure, with almost no progress on four-year plan. public private partnerships, he adds. “Generous credit from the BNDES is Finally, continued loose fiscal policy what you would expect at this stage of and the BNDES’ subsidized lending, which the cycle and has made up for the lack of reduces the efficacy of higher rates, is private sector credit,” says Campos Neto. likely to necessitate compensatory moves The BNDES is counteracting the in monetary policy down the line, says liquidity drought and aiding fiscal Garman. The next needed move is likely to policies, agrees Chris Garman, LatAm be upwards, he believes. practice head at the Eurasia Group. The bank has a good track record, evaluates Meirelles Succession lending carefully and has managed The probable loss of long-standing and credit operations skillfully, he adds. highly-respected central banker Henrique Furthermore, government pressure Meirelles – who is likely to quit the on state-owned Banco do Brasil and presidency of the central bank after more Caixa Econômica Federal is helping than six years to run for public office, extend credit and bring down rates. possibly as governor of Goías state – adds Results are already being seen, with uncertainty. Campos Neto believes that new loans rising 3.6% in June, led by the loss of the governor is unlikely to corporate credit, while consumer loans Generous BNDES credit: Campos Neto perturb the smooth running of the bank were up 1.1% and automobile credit and that an insider is almost certain to advanced by 21.1%. Thawing of credit step in. markets is occurring organically and Garman, however, is less confident. While Alexandre spreading into the private sector, with record low rates and Tombini, a deputy governor, is widely tipped to take Meirelles’ government pressure on private banks to lend helping to ease place, Garman believes that there’s a possibility of Lula the credit crunch. appointing an outsider. Moreover, Meirelles has built a strong If the near term looks positive, large questions remain personal relationship with the president which a newcomer over the long term effectiveness of this new industrial policy. would not immediately have, he says. Fishlow believes recent moves were necessary, but questions If the central bank is weaker, it is more vulnerable to the outcome of the more virile policies. Today, the BNDES dissent, increasing the risk of criticism from other ministries. is responsible for financing some 35% of total investment in The ministry of finance already had a prickly relationship with Brazil and is vital for sectors like aerospace, he notes. the central bank, and a new leader might not be able to deflect “You have to hope that this kind of active industrial policy political heat, putting the bank behind the curve on monetary will be effective. It has not always been,” Fishlow says. policy, Garman believes. A further problem is that there is excess capacity in several It will be all the harder to wean the government off economic sectors globally and, without a pick-up in world demand, stimulus as presidential elections slated for October next extending credit to export-dependent companies may be year promise to be a close call. Lula’s preferred successor is wasted, says Goldfajn. Dilma Rousseff, considered the favorite as the president rides Difficulty in devising policy is likely to be compounded as high in the polls. The electorate is happy with the status quo the economic cycle turns, lessening the need for government – even though Rousseff is not a seasoned politician – but her measures to keep the economy afloat. “Will the BNDES take a step back and allow the private sector to resume its role, or will recognition among the population is low, thinks Garman. LF 32 LatinFinance September/October 2009
Latin Finance - September/October 2009

Table of Contents for the Digital Edition of Latin Finance - September/October 2009
