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    Brazil and The International Crisis

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    pedrogor
    Brazil entered the global financial crisis in a strong position with declining public debt, foreign currency reserves, and a well-provisioned banking system. The document outlines Brazil's sound macroeconomic fundamentals and policy responses that helped mitigate impacts of the crisis, including reducing public debt through foreign exchange depreciation, increasing credit supply through non-earmarked FX auctions, and unemployment remaining low compared to past years. Charts show trends in GDP growth, inflation, credit markets, payroll and more remaining stable through the crisis period.

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    Brazil and The International Crisis

    Uploaded by

    pedrogor
    128 views28 pages
    Brazil entered the global financial crisis in a strong position with declining public debt, foreign currency reserves, and a well-provisioned banking system. The document outlines Brazil's sound macroeconomic fundamentals and policy responses that helped mitigate impacts of the crisis, including reducing public debt through foreign exchange depreciation, increasing credit supply through non-earmarked FX auctions, and unemployment remaining low compared to past years. Charts show trends in GDP growth, inflation, credit markets, payroll and more remaining stable through the crisis period.

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    Brazil and the International Crisis

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    Brazil entered the global financial crisis in a strong position with declining public debt, foreign currency reserves, and a well-provisioned banking system. The document outlines Brazil's sound macroeconomic fundamentals and policy responses that helped mitigate impacts of the crisis, including reducing public debt through foreign exchange depreciation, increasing credit supply through non-earmarked FX auctions, and unemployment remaining low compared to past years. Charts show trends in GDP growth, inflation, credit markets, payroll and more remaining stable through the crisis period.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    128 views28 pages

    Brazil and The International Crisis

    Uploaded by

    pedrogor
    Brazil entered the global financial crisis in a strong position with declining public debt, foreign currency reserves, and a well-provisioned banking system. The document outlines Brazil's sound macroeconomic fundamentals and policy responses that helped mitigate impacts of the crisis, including reducing public debt through foreign exchange depreciation, increasing credit supply through non-earmarked FX auctions, and unemployment remaining low compared to past years. Charts show trends in GDP growth, inflation, credit markets, payroll and more remaining stable through the crisis period.

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    of 28

    Brazil and the

    International Crisis

    Henrique de Campos Meirelles

    June 2009

    1
    Brazil at the Outset of the Crisis

     Declining public debt-to-GDP ratio;


     Public sector long in foreign currency, so that FX
    depreciation reduces debt-to-GDP;
     Fast, domestic demand-led growth;
     Low leveraged, fully provisioned banking system;
     Banking reserve requirements at BCB: R$ 260 billion
    (approximately US$ 160 billion);
     International reserves: US$ 205 billion;
     BCB's long position in FX futures market: US$ 22 billion.

    2
    Primary Fiscal Result

    3
    % of GPD

    -1

    Jan Jan Jan Jan Jan Jan Apr


    97 99 01 03 05 07 09

    Source: Banco Central do Brasil 3


    Public Net Debt

    54

    49
    % of GDP

    44

    39

    34
    Jan Jan Jan Jan Jan Jan Jan Aug
    02 03 04 05 06 07 08 08

    Source: Banco Central do Brasil 4


    International Reserves
    Aug 2008 June 18th
    205.1 206.0
    200

    150
    US$ billion

    100

    50

    0
    Jan Jan Jan Jan Jan Jan Jan Jun
    02 03 04 05 06 07 08 09
    Source: Banco Central do Brasil 5
    External Public Net Debt

    20

    15

    10

    5
    % of GDP

    -5

    -10
    -13,1
    -15

    -20
    Jan Jan Jan Jan Jan Jan Jan Apr
    02 03 04 05 06 07 08 09

    Source: Banco Central do Brasil 6


    Gross Domestic Product (GDP)

    Average 03-06 Average 07-08


    6 3.5% 5.4%

    5 Average 99-02
    annual growth %

    2.1%
    4

    0
    1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

    Source: IBGE 7
    Gross Domestic Product (GDP)

    Agriculture
    6.7%

    Services
    65.3%
    Industry
    28.0%

    Source: IBGE 8
    Income Distribution: Inequality

    0,60

    0,59
    Gini coefficient

    0,58

    0,57

    0,56

    0,55
    2001 2002 2003 2004 2005 2006 2007

    Source: FGV (CPS) 9


    Income Distribution: Middle-Class

    55

    50
    % of population

    45

    40

    35
    2001 2002 2003 2004 2005 2006 2007 2008

    Source: FGV (CPS) 10


    Domestic Demand and Supply
    change, year-over-year
    9.3

    9.0
    6.8
    7.5
    6.0
    4.5
    %

    3.0
    1.5
    0,0
    -1.5
    -3.0
    -4.5
    1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q
    03 03 04 04 05 05 06 06 07 07 08 08
    domestic demand GDP

    Source: IBGE 11
    Fixed-Capital Investment
    change, year-over-year
    19.7
    20

    16

    12

    8
    %

    -4

    -8

    1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q
    03 03 04 04 05 05 06 06 07 07 08 08

    Source: IBGE 12
    Inflation
    IPCA (accumulated in 12 months)
    18
    16
    market
    14 consensus
    12
    10
    %

    8
    6
    target
    4 range
    2
    0
    Jan Jan Jan Jan Jan Jan Jan Jan
    03 04 05 06 07 08 09 10

    Source: IBGE and Banco Central do Brasil 13


    External Shock Feedback Loop: Before

    External Deterioration
    Shock of Confidence

    Currency
    Depreciation

    Pressure on
    Public Debt/GDP ratio

    Domestic
    FX Public Debt
    External

    14
    External Shock Feedback Loop: Now

    External Deterioration
    Shock of Confidence

    Currency
    Depreciation

    Reduction of
    Public Debt/GDP ratio

    Public Debt
    Public Sector is Long in FX in FX

    15
    Public Net Debt

    51.3

    54
    average 2003-2006
    47.9
    49
    % of GDP

    average 2007-2009
    44 40.5

    39 38.4

    34
    Jan Jan Jan Jan Jan Jan Jan Apr
    02 03 04 05 06 07 08 09

    Source: Banco Central do Brasil 16


    Channels of Transmission of Global
    Financial Crisis to Brazil

    External

    Credit

    Domestic

    Foreign Trade

    Confidence

    17
    Total Credit

    (estimated, beginning of September/2008)

    External (US$ 97 billion)


    Domestic with external funding (US$ 47 billion)

    Domestic (US$ 620 billion)

    Source: BCB 18
    Domestic Credit Outstanding
    Growth Apr 09/Sep 08

    12 11.0
    20 19.5
    8
    18
    4
    16 -5.0
    0
    14
    -4
    12
    -8 small and
    %

    10 large
    8.3 medium
    8
    6
    4 3.2
    2.2
    2
    0
    total public foreign domestic
    banks banks private banks
    Source: BCB 19
    Initiatives to Inject Liquidity
    in Domestic Credit Market

    Recent measures:

     Non-earmarked FX auctions;
     Extension of deposit insurance on time deposits
    from R$ 60,000 to R$ 20 million;

     Increase in credit supply, especially to small


    and medium-sized banks.

    20
    Real Payroll and Earnings
    3 month moving average
    135

    125 real payroll


    Apr 09/Apr 08: +4.0%
    2003 = 100

    115

    105
    Real earnings
    Apr 09/Apr 08: +3.7%

    95
    Jan Jan Jan Jan Jan Jan Apr
    03 04 05 06 07 08 09

    Source: IBGE and BCB 21


    Unemployment Rate

    13

    12

    11

    10
    %

    2004
    2009
    9 8.9
    2005
    8 2006
    2007
    7 2008
    6
    Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

    Source: IBGE 22
    Auto Sales
    seasonally adjusted
    300
    271
    261
    242 247
    250 234
    thousands

    200 178

    150

    100

    50

    0
    Jan Apr Jul Oct Jan May
    08 08 08 08 09 09

    Source: Fenabrave 23
    Auto Production
    seasonally adjusted
    350
    303 294
    300 273 270
    253
    250
    thousands

    198 203
    200 185

    150
    97
    100

    50

    0
    Jan Abr Jul Out Jan May
    08 08 08 08 09 09

    Source: Anfavea 24
    Auto Production

    180 163.7
    Apr 09/ Apr 08
    150 Apr 09/ Dec 08
    120

    90
    %

    60 40.2
    36.6
    26.3
    30 13.9
    0
    -8.4
    -30 -18.2 -15.8
    -33.1
    -34.1
    -60 -47.1 -44.6 -46.6
    -56.5
    United Japan United Germany Mexico China Brazil
    Kingdom States

    Source: Anfavea and national associations 25


    Foreign Direct Investment

    4.0 3.8
    average per month 3.4
    3.5
    3.0 2.9
    US$ billion

    2.5
    1.9 2.0
    2.0
    1.5 1.6 1.4
    1.4 1.3
    1.5
    1.0 0.8

    0.5
    0.0
    02 03 04 05 06 07 08 Jan Feb Mar Apr
    09

    Source: Banco Central do Brasil 26


    Public Net Debt

    140

    120
    114.8 Japan
    103.6
    % of GDP

    100
    80.4
    80 78.0 Germany
    70.4 United States
    57.0 61.7
    60 66.9 United
    43.2 Kingdom

    40 38.0 Brazil
    42.0 39.1
    38.3
    20
    03 04 05 06 07 08 09 10

    Source: IMF and Focus (BCB) 27


    Brazil and the
    International Crisis

    Henrique de Campos Meirelles

    June 2009

    28

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