The president of Brazil, Luiz Inácio Lula da Silva, underscored the good indicators of the Brazilian economy in spite of the world crisis and soaring food prices and said his administration's policy is to increase production to combat inflation.
"The Brazilian economy is showing strength and sustainability and I think we are going to continue growing even with this inflation caused by food prices, worldwide, which is most fluid," said the president during his weekly broadcast Café com o Presidente (Breakfast with the President).
"In Brazil we have decided that the best remedy to combat inflation is increasing production. That is why we will continue to promote agriculture," he added.
Brazil is one of the world's leading suppliers of food but international prices have hit the domestic market forcing the Brazilian Central Bank to tighten credit with higher interest rates. Possibly the highest in the world with the basic rate at 13% and inflation estimated in 7%. Compare this with the US where the Fed rate stands at 2% and retail inflation is close to 5%.
Private economists in Brazil expect inflation in the range of plus 6.7%, higher than the latest target of the Central Bank, 6.5%.
Lula in his broadcast pointed out that Brazil has record numbers in job creation and in certain sectors of the economy such as agriculture and construction. In the first six months of the year Brazil generated 1.3 million new formal jobs. which represent a 5% increase over the same period a year ago. He also pointed out most of the jobs were created outside the main urban areas given the very intense expansion of farming and investments in infrastructure and construction.
But in spite of Lula's optimism, Brazil posted a wider-than-expected current account deficit in June as companies nearly doubled profit remittances abroad because of a strong domestic currency, according to data released by the Central bank on Monday.
The deficit reached US$ 2.6 billion in June compared with a 539 million surplus in the same month of 2007. In May, Brazil posted a current account deficit of US$ 649 million, according to previously reported central bank data.
The deficit should widen to US$ 2.8 billion in July, said Altamir Lopes, head of the central bank's economics department.
Multinational companies in the country sent US$ 3.4 billion in profit and dividends abroad, compared with US$ 1.75 billion in June 2007, as gains in Brazil's currency made it cheaper to buy dollars.
Brazil's currency Real has gained nearly 13% against the US dollar so far this year after surging more than 20% last year. The strong real has fueled a surge in imports, cutting the country's trade surplus and affecting Brazil's external accounts.
Foreign direct investment in Brazil fell to US$ 2.72 billion in June from US$ 10.3 billion in the same month in 2007. FDI is forecast to reach US$ 3.2 billion in July, Lopes said.
Risk Is Up
Brazil and Mexico risk ratings dropped nine and six points respectively while Argentina's climbed ten, according to the EMBI index from the US JP Morgan bank reported this Monday the Mexican Finance ministry.
On July 25th, Mexico's rating stood at 165 points, Argentina's at 609 and Brazil's at 217, according to the report.
The risk rate is an indicator used to assess the economic stability of a country and its capacity to accomplish financial obligations.
The percentage number is the difference in quotation between the sovereign debt instruments issued by different countries and those of the US Treasury measured in hundredths of percentage point.
The EMBI index from JP Morgan shows the evolution of yields from those debt instruments which are traded in international markets, issued by 19 emerging countries.