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Brazzil - Politics - June 2004

Brazil: Lula Down, Inflation Fears Up

A new poll by the Brazilian Institute of Public Opinion and
Statistics shows that Brazilians are afraid that high inflation
will be back to the country's economy. The same survey also
shows that President Lula's popularity continues to fall. Only 54
percent of the population now say that they trust their chief.

Irene Lôbo


Picture This year's second poll conducted by the Ibope (Instituto Brasileiro de Opinião Pública e Estatística—Brazilian Institute of Public Opinion and Statistics) at the request of the CNI (Confederação Nacional da Indústria—National Confederation of Industry) indicates an increase in the number of Brazilians who believe that inflation will return to Brasil. The CNI/Ibope poll results—these surveys are conducted quarterly—were announced June 29, in Brasília.

In terms of what the population expects of the economy in the next six months, the study found that 55 percent of the respondents believe that inflation will increase, while 12 percent think that it will decrease. In the previous poll, 48 percent believed in an increase, against 13 percent who expected a decline.

The results also indicate that President Luiz Inácio Lula da Silva's popularity continues to fall, but at a slower rate than during the previous period, between December, 2003, and March, 2004.

According to the current survey, 54 percent of the respondents trust the President, versus 43 percent who do not trust him. In the previous poll, in March, 60 percent trusted him, and 36 percent did not.

Two thousand voters over 16 years of age were interviewed in 140 municipalities around the country during the period June 17-21.

Real Growth

Despite a slow economy and high unemployment Brazil's Minister of Planning, Budget, and Management, Guido Mantega, assured his countrymen that economic growth in Brazil is no longer circumstantial nor does it depend as much on agribusiness. He believes that growth is taking place generally and is even visible in retail business in the country's principal metropolitan areas.

"From the indicators I have seen, one can observe that there is a generalized growth, a diffuse growth in the country. It is no longer economic growth confined to the export sector, even though this has been the leading sector in the growth cycle that is beginning."

In Mantega's view, the country should end the year with an economic growth of around 3.5 percent. According to him, economic expansion is occurring in all major industrial segments, and the level of consumption in the large metropolitan areas is increasing.

"I am led to believe that what we have is not just a process of localized, circumstantial growth, but generalized growth, even though it is more responsive in some areas, such as the export sector.

"It is also possible to observe this growth in the capital goods (machines and equipment) and metallurgical sectors. And even in data I have seen from the large retail stores, which have sold much more than before."

For the Minister, this increase in consumption reflects the improvement in people's income level, with consequences for the economy in general.

"The surveys of investment intentions indicate that entrepreneurs are extremely optimistic. Data released by the Getúlio Vargas Foundation show that entrepreneurs want to increase their investments to expand industrial capacity, not just to increase the efficiency of their businesses by reducing costs. This is not the case; the goal is for greater investments to expand supply."

Mantega emphasized that behind the recovery in the level of commercial activity is, most of all, the lowering of interest rates. "The Selic—the economy's basic interest rate—has fallen 10.5 percent since last July."

More Investments

The Brazilian economy's investment rate was 19.3 percent in the first quarter of 2004, higher than the levels registered in all four quarters of last year, when the rates were 18.7 percent, 17.2 percent, 18.1 percent, and 18.2 percent, in chronological sequence. These results appear in the Quarterly National Accounts released by the Brazilian Institute of Geography and Statistics (IBGE).

The IBGE's Director of National Accounts, Carlos Sobral, said that the increase in the investment rate as a proportion of the Gross Domestic Product (GDP) "reflects the recovery of the country's economy, but the current investment level needs to go up in order to guarantee the 3.5 percent economic growth rate projected for this year," he emphasized.

In Sobral's opinion, a 25 percent investment rate would be reasonable for the country's growth to be continuous and sustainable. The IBGE specialist cited the example of China, where the investment rate last year was 47 percent. He recognized, however, that "the situations are different, and what is most important is to maintain the upward trend in investments in the country."

Foreign direct investments in Brazil totaled US$ 2.5 billion (7.9 billion reais) in the first quarter of this year against US$ 2.2 billion (6.9 billion reais) during the same period last year, according to information released by the Brazilian Institute of Geography and Statistics (IBGE). In the last quarter of 2003, foreign investments in Brazil had amounted to US$ 3.4 billion (R$ 10.7 billion).

In the analysis provided by the IBGE, the greatest inflow occurred in January, when the Brazil risk premium hovered around 400 points, and federal government bond issues on foreign financial markets were able to attract most of these investments.

"With the increased volatility of the country risk premium in February and March, when it oscillated around 550 points, there was a reduction in inflows from abroad. The first quarter was also characterized by the maintenance of an annualized benchmark overnight interest rate of 16.5 percent," the IBGE explained.

Irene Lôbo works for Agência Brasil (AB), the official press agency of the Brazilian government. Comments are welcome at lia@radiobras.gov.br.
Translated from the Portuguese by David Silberstein.

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