For Brazil, US and EU Crisis Has Become Chronic and Will Last for Years

Brazilian Finance minister Guido Mantega Guido Mantega, the Brazilian Finance minister, admitted that Brazil may have to lower its growth estimate if the economic crisis in the EU and US markets persists. “We can’t do miracles.” said Mantega following a ministerial coordination meeting in the Planalto Palace. He added it was ‘premature’ to advance any of the possible measures Brazil could adopt since ‘the situation (in the developed countries) could begin to improve in the coming weeks’. 

“In the advanced countries the crisis was never over.” underlined Mantega. “Today it is like a 2.2 seism in the Richter scale, but in 2008 we reached 8.8 in the Richter scale to give you an idea.”

Mantega described the problems in the developed countries as ‘chronic’ and said the ‘crisis situation’ would extend for the ‘coming years’. And if global consumption drops, “the world will be heading for a major recession”.

However “though further ‘bloodletting’ by markets could start to erode wealth and create a drag on the global economy, that isn’t yet the case”.

The minister indicated that Brazil was not at the epicenter of the crisis but will feel the effects. For this reason the Brazilian government will strengthen fiscal discipline and help Brazilian corporations. Mantega added that the domestic market needs to be stimulated so that “Brazilian products are consumed.”

He added it was essential for Brazil not to increase spending but did not announce any government budget cuts. “You simply can’t ask for increases in such a situation”.

The Brazilian official criticized Europe for the difficulties in reacting to the crisis. “G-7 does not realize that the European governments are going around and around in circles”.

Mantega said Brazilian authorities have the ability to free up more credit, if necessary, and highlighted the country’s positive fiscal balance, large foreign-exchange reserves and strong domestic demand.

Mantega also expressed confidence in the U.S. dollar as a “solid currency,” though he said U.S. officials have a challenge ahead of them in bringing down debt levels, reducing the fiscal deficit and creating jobs.

Not Afraid

Brazilian president Dilma Rousseff said that as a second international financial crisis unfolds, for a second time Brazil will face it and emerge victorious. The country is strong, its banks are solid, the domestic market is robust and international reserves are higher than they were in 2008, said the president.

“We have taken big steps in the direction of stability. This is the second time we have had to face one of these crises, and for the second time Brazil is not afraid,” she declared.

Dilma added that the situation called for serious and firm action by the government, the business community and society. “This is not the moment to play around, spending what we don’t have. We just need to go on about our business, consuming what we regularly consume because we are not in a weak position. We are recognized here and abroad as a strong economy,” she said.

As for new measures, Dilma said she did not see any need at this moment, but that the government was observing the situation very closely. If it became necessary to act the government would do so immediately, she said.

“Caution and watchful waiting are called for at this time. There is no need to precipitate. As a nation, what we need is calm.”

Mantega, says that although Brazil will not escape the crisis, it has the means and tools to deal with it. “We are not in the center of the storm. The danger is not here in Brazil. We have a solid, sound fiscal situation and I can promise that our fiscal situation will improve over time,” said the minister. “

However, there will be consequences in Brazil. Even so, we have the instruments to minimize any problems. And at the same time, we believe this may not last very much longer.”

Mantega went on to say that Brazil was even better prepared today than it was in 2008 and that it had a cushion of over US$ 300 billion in international reserves along with the means to control the exchange rate and could introduce mechanisms to halt the devaluation of the dollar.

The minister pointed out that Brazil has government-run banks, something many other countries do not have, and they can come to the rescue with resources if needed to stimulate consumption.

The minister concluded by saying that although the crisis was centered in Europe and the United States, emerging nations could have an effective participation in resolving it. “The G-20 could make an important contribution to a solution. If the G-7 wants to, it can call on the G-20,” he said.

Exports

Brazil is prepared to defend itself from the consequences of the crisis, but should not navigate calm seas while Italy, Spain, Greece and the United States fight to solve their fiscal and political problems. The global unsettlement should have an effect on Brazilian exports. Among the products exported, manufactured ones should be the most affected.

According to the chief economist of the Institute for Studies in Aid of Industrial Development (Iedi), Rogério Cesar de Souza, Europe is suffering a crisis due to countries that are finding it hard to grow, generate income and finance themselves. As the domestic market in these nations is more fragile, the way out would be investment in exports to make them more competitive.

On the other side of the Atlantic, the United States is not living a problem to finance itself. However, it cannot foster growth of its economy without depreciating the dollar. Therefore, North American producers must export at low prices and make foreign sales by other countries, among them Brazil, more difficult.

“We may return to seeing the same scenery as last year’s, with our currency appreciating and our losing markets. With matters like the ‘Brazil cost’ (high tax burden and precarious infrastructure, among others), it is expensive to produce here. Our exports may suffer with the crisis while facing greater competition with European products and the depreciation of the dollar. In this scenery, industry should be penalized the most,” said Souza.

The chief economist at the Iedi also warns that exports of commodities, which represent the greatest share of what Brazil sells abroad, may be less profitable from now on. “Investors are racing to buy United States bonds, which has already resulted in a reduction in commodity prices. The lower prices affect our trade balance, which is positive mainly due to the appreciation of commodities,” said Souza.

To Cristina Helena de Mello, macroeconomics professor of the Pontifical Catholic University of São Paulo (PUC-SP), the US may not, at the moment, generate revenues with greater taxes. That was prohibited in Congress talks last week for negotiation of expansion of the debt ceiling. The solution for the North Americans is to cut spending, which has a direct influence in Gross Domestic Product (GDP) growth.

“With lower economic activity, US imports drop. They are the main Brazilian partners and should import less. Many countries that export to them and import from us will also reduce the rhythm of purchases,” she observed. Cristina says that Brazil may compensate this loss with domestic consumption.

Celso Grisi, a professor at the Economics and Business Administration College of the University of São Paulo (FEA-USP) and director at Fractal Research Institute, said that Brazilian exports should suffer a “reasonable” impact as there will be lower growth of the global economy and lower imports by the United States and Europe. With this, China will export less to those nations and will have a reduction in economic activity. China will also buy less.

If the scenery is not favorable, Brazil has instruments to help endure the crisis better. “Brazil may reduce its tax burden with a mini tax reform. The country is already alleviating payroll in some cases, but may work on a labour reform to make the legislation more flexible. It may reduce the interest rate and, thus, appreciate the national currency. It may also return to an expanded credit policy,” said Grisi.

He recalled that among the manufactured product sectors, the first to suffer with the crisis should be the auto industry. Base equipment and parts producers may also feel a reduction in exports.

Green Economy

The implementation of public policies that are capable of protecting the environment while fostering activities to include the poorer population in Gross Domestic Product (GDP) formation will be one of the main proposals to be submitted by Brazil to the United Nations (UN), in November, for debate at the United Nations Conference on Sustainable Development (Rio+20).

The proposal was championed today (9th) by federal government representatives at the Ethos Conference, Enterprises and Social Responsibility 2011, promoted by the Ethos Institute, at the headquarters of the Federation of Commerce of the State of São Paulo (Fecomércio).

During the meeting, the Brazilian minister of Environment, Izabella Teixeira, stated that Brazil, more than any other country in the planet, can show the world that it is capable of maintaining its economic growth trajectory without compromising biodiversity.

She demanded boldness from the country during the debates of the conference, highlighting that “Brazil qualifies to play a leading role in sustained growth projects and the facing of the challenge of eradicating poverty.”

To the minister, however, a law must be passed that will “provide legal security to a vision of public policies and private sector investment, and to provide funding to all of those who wish to plant, reforest and handle.” She believes that the country can develop without illegal deforestation. “Our proposal is to work in tandem with the private sector.”

Also attending the meeting, minister Tereza Campello, of Social Development and Hunger Alleviation, claimed that although the government has attained success with its poverty reduction policy, which rescued 28 million people from extreme poverty, there are still 16.2 million people living below the poverty line, with per capita incomes lower than 70 reais (US$ 43.8).

She stressed that these people have not benefited from the chances that were offered during the “labour force blackout” due to lack of qualification and that for that same reason, the government has been working on three different fronts to reverse this scenario: income transfer, productive inclusion and increased access to public services. “We must seek this population,” she said.

According to the minister the government is working on measures that will cause family farming to make headway in product supply to the domestic market as a means to generate income. In rural areas, 25% of the population is in a situation of extreme poverty.

Leading wind turbine maker to establish assembly plant in Brazil
Danish wind turbine maker Vestas is to establish its first assembly plant in Brazil and expects it to be operational in the fourth quarter.

“The investment is included in Vestas’s CAPEX program for 2011,” Vestas Wind Systems A/S said on Monday.

The assembly plant and a new service operations cluster will be situated in a new 10,000 square meter facility, including building and land, in Fortaleza, Ceará in the northeast of Brazil.

The plant will be dedicated to assembly of nacelles, the hub which sits atop a wind turbine tower and encases the gear box, drive train and other components at the center of the rotor.

“When fully operational, the facility will have an annual production capacity of approximately 400 nacelles of the V90 and V100 turbine type representing an initially estimated annual capacity of 800 (megawatts),” Vestas said.

By the end of 2010, Vestas, which has been operating in Brazil for a decade, had delivered to the Brazilian market turbines with a total capacity of 204 MW, it said.

This year Vestas has announced orders for 380 MW of new capacity in Brazil taking the current total capacity of announced firm and unconditional orders in Brazil to more than 600 MW, the company

Having reached a total installed base of 1,000 MW, wind represents today only one per cent of all installed energy capacity in Brazil.

The Brazilian Ministry of Mines and Energy presented in June this year a 10-year energy plan, in which wind has been targeted for the greatest growth rate over the next decade with the ultimate goal of reaching around 12,000 MW by 2020 – representing approximately 7% of Brazil’s total installed energy base.

After PROINFA and two auctions in December 2009 and August 2010 for wind energy projects for a total capacity of 5,200 MW, on 17-18 August 2011, project awards will be assigned for the development of additional new wind capacity.

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