Saturday, March 7, 2009

Economic downturn and Brazil

Given my lack of Portuguese reading skills I remain on the outside of the local daily news cycle. That said, I read multiple English language sources every day that keep me at least peripherally on the ball.

Friends have asked me to comment on how the global economic downturn is affecting Brazilians. I don’t want to go too far out on a limb here. Luiz and I are not typical Brazilians in so far as we have resources saved from the past several years in the States. This savings puts us in a slightly more freak-free zone. That is, any immediate downturn does not have our butts scraping the ground.

But truth be told it does not seem that the economic perfect storm taking down most of our friends in the US has hit all that hard here in Brazil. We are in a different reality.

For example: Brazilians do not, as a rule, have credit card debt. The average interest rate here for a typical credit card is about 150% per year. Nobody is using a credit card to buy a flat screen TV or to buy groceries. Penalties for writing a bad check or missing a scheduled payment are swift and severe.

While there may be some housing price booms going on in places like Leblon and Ipanema in Rio – and certainly in other locations along the coast or in cities like São Paulo, most Brazilians live in very simple houses in very simple towns. The rise of a vast middle class buying homes utilizing home loans of any variety has yet to reach this developing country – at least at the scale that would/could crash an economy.

Unemployment is up. On the other hand interest rates on some bank loans have been lowered recently so that more people can afford cars. Car sales have been increasing in recent months (big contrast with the US).

So – I guess the poor are getting the last laugh (figuratively speaking - not many of Brazil's shockingly poor are laughing.) If you are broke you can’t get screwed too much by the money changers who are screwing the money holders. But then Brazil is seeing a drop in the export of goods they rely on developed countries to buy. Manufacturers are closing shops. This is having a direct negative impact on the economic growth enjoyed over the past few years.

Maybe the downturn has yet to land ashore in a way that affects everyday citizens.

This article in the recent issue of TIME magazine suggests Brazil may just steer clear of the global economic disaster. I encourage you to read the article – here are some hot quotes:

“Most Brazilians believe [President Luiz Inácio Lula da Silva] is the reason their country is surviving the current downturn better than other places.” "Lula has an 80% approval rating."

“According to a recent study by the Paris-based Organization for Economic Cooperation & Development (OECD), Brazil may be the only one of 34 major economies that avoids recession in 2009.”

“Exports have been diversified so as to reduce reliance on commodities, and before the downturn the nation socked away a record $208 billion in foreign reserves. The banking system has remained well regulated, and so far seems to have been less exposed to the toxic assets that have wrecked many U.S. and European banks. All this has "buffered Brazil quite a bit against the global downturn," says Paulo Leme, emerging-markets director at Goldman Sachs.”

"Brazil's business leaders insist record profits during the 2005-2008 boom allowed Lula to aid the poor; Lula argues his antipoverty crusade fueled the economic growth. It's a chicken-and-egg debate, in which both sides are right. What matters is that social stimulus programs like Bolsa Família have been matched by fiscal measures like a reform of Brazil's engorged civil service pension system. "It's called doing things right," says Lula. "Allowing the rich to earn money with their investments and the poor to participate in economic growth."

Check out the complete article here.


GingerV said...

Very good entry - I enjoyed the information. I find myself avoiding reading about the situation in the USA - I get so angry at the greed - the banks/stock markets/government and individuals that have created this damamging situation.

Jim said...

Thanks Ginger. I guess if people and companies do not have to de-leverage back into reality they do not have as far to fall.

As Luiz taught me many years ago - "Do not put your hand where your arm cannot reach!"