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Brazil: Plenty of Good New$

Brazil: Plenty of Good New$

There is a clear message in the sudden surge of interest by
foreign investors in Brazil: they
believe the country has
overcome bad times and is ready for an overdue recovery. The
Brazilian economy
and stock market seem euphoric and plenty
of positive indexes tell that the recession might be
already over.


Alessandra Dalevi


This has been a week to impress even the most optimistic in the Brazilian government together with all of those who
are rooting for the Lula administration. The good news were also enough to annoy those for whom the worse it gets the
better they like. The market is euphoric in Brazil.

The country’s risk premium—an index to gauge the confidence of the foreign investor in Brazil—fell to 617 points,
the lowest since July 1998. Late September 2002, during a presidential campaign that demonized Lula, the Brazil risk
reached 2,429 points. Earlier this year, it had already fallen to 1,430 points though.

The IBGE, Brazilian Institute of Geography and Statistics, announced that the Brazilian industrial production grew
by 1.5 percent in August—the year’s largest increase—when compared to the previous month, in a strong indication that
the country is leaving recession territory. Thirteen of the 20 industrial sectors studied by IBGE showed improvement. This
increase seems to be in reaction to the reduction by the Central Bank of the Selic, the country’s basic interest rate. From June to
September, the Selic fell from 26.5 percent to 20 percent a year. This attracted more borrowers and provoked a discreet increase in spending.

The US dollar continued its drop for the
5th consecutive day and people were paying 2.84 reais to buy one dollar. Since
July 4, the dollar hadn’t fallen below 2.85 reais.

The announcement by Moody’s Investors Service that Russia was being promoted to investment grade stirred
speculations that the Brazilian rating would be also going up very soon. This contributed to a rally in the C-Bonds market, the
main paper of Brazil’s sovereign debt. C-Bonds shot up to US$ 0.935, their highest level ever.

On Wednesday, the Ibovespa, the key index for the São Paulo Stock Exchange, closed at 17,804 points, the highest
it has been since January 29, 2001. Bovespa has seen increases six days in a row. It’s been a joy ride. The Ibovespa grew
by 58 percent this year and increased in value by more than 100 percent in 12 months.

Gustavo Alcântara, chief analyst of Prosper Bank believes that there’s a strong flow of money brought in the São
Paulo Stock Market by foreign investor. "The foreign influx has been exceptional," he said.

On Monday, October 6, state-owned Petrobras, according to its own account, processed 1,795,278 barrels of
petroleum derivatives in is refineries throughout Brazil. This was a record number surpassing the previous record of June 24, 1999,
when 1,785,000 barrels were processed.

Not one to let such an occasion go unnoticed, the company released a self-congratulatory note stating: "This result
reflects the process of continuous improvement in the techniques adopted by the units in search of operational excellence,
processing the volumes of load with reliability and security for the personnel, equipment, and environment, without a loss in
returns. It also reflects the reliability and the force of integration in the logistic chain of supply."

The Other Side

For Gustavo Loyola, the former president of Brazil’s Central Bank, Russia’s better grade is no guarantee that Brazil
will also be upgraded soon, although, he believes that the international rating agencies like Moody’s and Standard and
Poor’s owe Brazil a better rating. His argument to dismiss an imminent improvement in the Brazilian profile: "Russia has much
better indicators than ours, chiefly the external ones."

From Fiesp, the São Paulo State Industry Federation, came a dissonant note. According to Clarice Messer, director
of Fiesp’s Department of Research and Economic Studies, it is still too early to assert that the Brazilian industry is in recovery.
For her, the IBGE numbers pointing to 1.5 percent expansion of the industrial production, are not enough to establish a
growing trend. We would need more months of growth to start believing in a true recovery, according to her.

The president of CUT (Central Única dos Trabalhadores—Workers’ Unified Central) is not waiting for any possible
trickle down of these recent good news. He met Lula to present him an emergency plan that calls for the creation of one million
jobs during the first semester of 2004. He suggested the creation of a job front that would include the building of popular
houses, besides cleaning and basic sanitation work.

Marinho believes that the growth expected in the industry in the last quarter of 2003 will not result in the creation of
new jobs before March 2004. After his meeting with Lula, the labor union leader, said that the President had promised to
study the proposal and present a counter proposal by early November: "The President agreed that at first the resumption of the
economy will only cover the industry idle capacity, but will not have a direct impact on joblessness. He agreed, generally
speaking, with our proposal."

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