The president of Brazil, Dilma Rousseff, said that, for the second time in a row, an international financial crisis affects the world and, for the second time, Brazil "is not shaking." Rousseff stated that the country is strong, with solid banks, a robust domestic market and higher reserves in compulsory loans than at the time of the global financial crisis in 2008.
"We have taken very great steps in the direction of stability. This is the second time that a crisis affects the world and it is the second time that Brazil doesn't shake," she said in a press conference after her meeting with the prime minister of Canada, Stephen Harpe.
In Rousseff's evaluation, to maintain its favorable position, the country needs joint action between the government, businessmen and society. "We must maintain serious, firm and perceptive awareness that we cannot, now, play and spend what we do not have. We must continue consuming what we consume as we are not facing any threat. We are not fragile and that is recognized nationally and internationally."
When inquired whether the government may adopt new measures in the economic area, Dilma answered that she sees no need for the adoption of any other measure this week and that the government will act carefully based on observation of the global scenery. "Brazil will be very careful with its positioning. Care and observation are fundamental. We have no great need for rashness."
The president also said that Brazil is not facing a threat, but guaranteed that she will take all necessary measures to strengthen the country. She called for all segments to exercise "much tranquillity, calm and no excess."
The São Paulo Stock Exchange (Bovespa, in the Portuguese acronym) closed on a sharp down note this Monday (8th). It was the first day of trading after risk rating agency Standard & Poor's downgraded the United States' debt rating. Ibovespa, the main Brazilian stock market index, dropped by 8.08%, to reach 48,668 points. Today the Bovespa was back to black.
It was the highest drop since 2008, when the world was shaken by the United States mortgage crisis. Throughout the day, the Ibovespa dropped by as much as 9.73%, following the trend of the leading stock exchanges worldwide. The Dow Jones index, of the New York Stock Exchange, closed down 5.55%. The London Stock Exchange's FTSE 100 ended the day on a drop of 3.39%.
To some economists, however, the Brazilian bourse's reaction to the news of the fiscal situation of the US and Europe was "exaggerated." They believe that the sharp decline has "emotional" causes and should therefore be reversed.
"The decline witnessed today was more emotional than it was rational," said Keyler Carvalho Rocha, a professor at the School of Economics, Administration and Accounting of the University of São Paulo (FEA-USP). "The market will tend to recover."
According to the professor, the economic scenario in countries such as Greece, Italy and Portugal is delicate. The terms of the agreement to raise the United States debt ceiling were also less than ideal. These, nevertheless, do not justify such a pronounced drop in the Ibovespa.
"Petrobras' stock dropped by roughly 30% this year, but the company is healthy, posting profits," the professor explained. "The price is unreal. It should go up in the long run."
Alcides Leite, a professor at Trevisan Business School, also believes that the Ibovespa decline today was "exaggerated" and bears a "strong emotional component."
According to him, however, there is no telling whether an even sharper decline may still take place, or when will a bullish trend be recorded again. Still, he acknowledged that the lowering of the US' debt rating "was historical" and that "the repercussion of this event on the market is strong."
In this situation, Leite advises patience to those who have funds invested in stock. To those who have cash available and are considering investing to earn profits in the long run, Leite stated that the stock exchange is a good choice. "Investing is recommended to those who can wait at least two years."
The decline in stock exchanges around the world has also impacted on the exchange rate. The commercial dollar exchange rate increased by 1.96%, at 1.61 real per dollar. The euro exchange rate increased by 2.35%, at 2.30 real per euro.
The latest weekly survey of the financial market by the Central Bank's Focus report, ending August 5, found that the forecast for GDP growth this year has fallen slightly from 3.96% to 3.94%. For 2012, the forecast is for GDP growth of 4%.
Expectations for industrial output also dropped slightly, from 3.21% to 3.01%. The forecast for next year is just over 4.3%.
The projection for public sector debt as a percentage of GDP was lowered from 39.26% to 39.10% this year. For 2012, the projection is 38%.
As for the dollar, the market sees it at R$ 1.60 at the end of this year. And at R$ 1.65 at the end of 2012.
The forecast for the trade surplus is now US$ 22 billion (up from US$ 21 billion last week). In 2012, the market now believes it will be US$ 10,65 billion.
The market forecast for the current account deficit is US$ 59 billion this year. And around US$ 69 billion next year.
As for direct foreign investment, the market sees it steady at US$ 55 billion this year, falling to US$ 50 billion next year.
A former analyst at the Central Bank, now a professor at the University of Brasília and member of the Federal Economics Council (Conselho Federal de Economia), Newton Marques, says that once again (referring to what happened in 2008-09), the domestic market will save Brazil as the world moves into global economic troubles.
"The dollar is tanking everywhere and that means demand abroad for Brazilian goods will fall. Under the circumstances, discussion of the exchange rate and the rating agency downgrading of the United States are moot points."
According to Marques, the crisis will certainly affect Brazil. "However, we are in a privileged position. We may be forced to retreat, to take a step back, but, then, we will be able to move forward quickly, take ten steps ahead. First of all, our financial system has been adjusted and we have international reserves of US$ 3 00 billion.
"There is an exchange rate problem? Yes, but everybody has an exchange rate problem. It is not just our business sector. Second, Brazil is one of only a few countries that still has room for agricultural expansion. We can expand cropland and feed the world.
"We also have abundant raw material. Third, we have income distribution programs that are increasing the salary mass. In other words, the domestic market is expanding. This is attractive to the foreign investor," said Marques.
"All this is reason for us to applaud former president Luiz Inácio Lula da Silva," he concluded.