The global financial crisis sparkled by the US mortgage debacle has prompted the Central Bank of Brazil to adopt a new measure in order to increase the volume of funds available in the market. Changes were effected to mandatory payments (a portion of the funds that banks are obliged to pay to the Central Bank) for government bonds, with incidence on credit deposits.
According to the press office at the Central Bank, the measure is going to issue up to 23.5 billion reais (US$ 11.7 billion) in government bonds in the market, which may be converted by the banks into money for circulation.
One of the new rules provides that banks will have the option of discounting, from some of the funds allocated to the Central Bank, the value of purchase of credit operations from other financial institutions, as long as the selling party has a capital of at least 2.5 billion reais (US$ 1.2 billion). In other words, the measure benefits small banks, which may sell their credit portfolios and count on greater funds, in addition to reducing the amount that large banks must receive.
The discount value will be limited to 40% of total mandatory payments to the Central Bank on credit deposits. The buyer institution will only be able to allocate 20% of the discounted limit for purchases of credit operations from another bank. Only credit operations originated at the selling financial institution until September 30, 2008.
According to the Central Bank, only portfolio purchases that took place up to December 31st, 2008 will be considered. The Central Bank also informed that the measure applies to the period for calculation of mandatory payments ranging from September 29 to October 3, 2008, and for which adjustment should occur on October 10, 2008.
On Thursday, October 3, Latin American markets tumbled dragged by Wall Street (down 3.22%), with Brazil's Bovespa and Argentina's Merval suffering the largest losses.
Sao Paulo's stock market collapsed 7.34% reaching 46.145 points and the Buenos Aires market lost 5.43%. Mexico IPC also was rattled dropping 4.34% stabilizing in 24.027 points.
In Brazil companies linked to commodities suffered the most. At one point of trading the market was on the verge of the 10% loss which automatically suspends all activities for half an hour. Petrobras, Brazil's giant oil corporation lost 11.85%.
Meantime the Brazilian currency closed at 2.02 reais to the US dollar, having lost 5% from Wednesday.
At the close of Thursday trading Argentina's Merval accumulated a 10.13% loss in the week and 29.32% since the beginning of the year.
As in Brazil, Tenaris, the world's main manufacturer of tubes for the petroleum industry and one of Merval's main equities lost 11.35%.
The Chilean stock exchange market was down 3.87%, with copper, the country's main export below 3 US dollars the pound and the Peso continuing to loose ground to the US dollar, 570 pesos.
Peru's market lost 4.42%, Colombia, 0.90% and Caracas 0.15%.
In spite of the poor showing a top official from the World Bank visiting Chile said Argentina, Paraguay, Uruguay and Chile are in a better position to address the international financial situation, although no country will be immune to the impact of the fallout.
"Latinamerica overall and the four countries I mentioned, the desk I represent in the World Bank are far better positioned to protect themselves from the crisis than what they were when the Asian crisis or the problems faced by Brazil in 1999 and Argentina in 2001/02," said Pedro Alba WB director for the four countries.
If the fallout comes it "will impact on commodity prices and volumes exported", but the region is better prepared, he insisted.
The United Nations Economic Office for Latinamerican and the Caribbean, Cepal seated in Santiago also released good and bad news for the region.
Executive Secretary Alicia Barcena said the region was well prepared for the crisis, "but will suffer on the investment side", with less money coming in and higher interest rates.
She also said that Cepal had again revised down Latinamerican growth rate for this year with the new forecast standing at 4%.