Looking towards 2009, economists are unanimous in saying that: there are no significant inflationary risks. On the one hand, drop in commodity international prices and slowing down of global demand will, in contrast, cause a deflationist wave. On the other, this represents a window of opportunity of Brazil adjusting the exchange rate, exiting the appreciation trap that persisted over the past years, and, simultaneously, without generating additional inflationary pressures.
Acceleration of domestic demand and rising commodity prices in the international market were the two inflation villains and justified, from the point of view of Copom (Brazil’s Monetary Policy Committee), the recent rises in the Selic (Special System of Clearance and Custody) rate. The challenge now will actually be to look more to the windshield and less to the rear view mirror. The risk is to make an assessment error and in six months time, when interest rates defined now start exerting effect on the "real economy" it becomes an additional fact to upset the level of activities.
With the worsening of the US financial crisis, Brazil shall rely on US$ 11.9 billion less this year to finance its accounts abroad, according estimate made by Brazil’s Central Bank. The value is related to the drop in flows of foreign loans and investments to Brazil in 2009, in comparison with last year’s result.
As a whole, capital flow shall go from US$ 90.2 billion to US$ 78.3 billion, with a 13% drop. The biggest retreat is expected for foreign investments in Brazilian fixed income stocks and bonds. For 2009, however, entry of US$ 15 billion is expected, with a 32% reduction in relation to the surplus forecast for 2008. “We have a situation of balance of payments perfectly possible to finance in 2009, yet with a certain retreat in foreign capital flow, evidently reflecting the crisis. It could not be different”, said the Head of the Economic Department of the Central Bank, Altamir Lopes.
Figures show that, until now, the hardest impact of the crisis in Brazil was felt in the financial market.
Even so, high governmental reserves in foreign currency (US$ 206 billion) can help Brazil endure this turbulence period with more tranquillity.
Some of the virtues of this model are transparency and foreseeability, which will soon be ten years old, revealing a significant stability. The model was created to contemplate relative flexibility in order absorb shocks of exogenous costs, those that do not depend on domestic decisions. This is the case we currently live with the increase in oil and agricultural product prices.
A good sign for interest rates and inflation targets in Brazil are market expectations, which indicate an average inflation expectation of 4.8% for 2009 and 4.5 for 2010.
Classic inflation fighting measures, such as interest rate rise and primary surplus rise have already been taken by the Brazilian government. Others may still come, by necessity. Nevertheless, it is convenient to remember that they take time to produce effect.
It is also important to emphasise that, in the medium and long terms, inflation is actually fought with the expansion in the economy’s supply capacity. Thus, it is important that restriction in interest rate or in credit, if it occurs, be the shortest as possible, so as not to contaminate the environment for productive investments.
The challenge is to preserve inflation control, but without unnecessarily undermining growth. Any exaggeration in the adoption of contention measures may backfire where growth and appetite to continue increasing productive investment are concerned. This is the only way to assure supply expansion, beyond demand, as well as the true form to fight inflation structurally, and not just in an episodic and reactive manner.
Inflation acceleration in Brazil has generated exaggerated concerns. There are local factors, but the world is living a phase of inflationary pressure resulting from the incorporation of 200 million new consumers per year that stimulate the demand as well as speculation with commodities in the financial market.
There is reason neither to show off nor to settle down. In fact, it is necessary to act, yet taking into account that the scenario continues quite favourable for Brazil. Given the macroeconomic conditions it is possible to reasonably control inflation without generating unnecessary costs to the incipient economic growth.
Reduction in the pace of global demand growth and, consequently of the prices of the products exported by Brazil implies a search for alternatives. Nevertheless, improvement in the quality of external insertion of the Brazilian economy, besides of policies oriented towards development can count with the participation of Brazilian companies.
It is interesting to note that internationalisation occurred by work and initiative of companies. There was no deliberate State policy oriented towards promoting the insertion of these companies. It is precisely in this point that there is an immense potential for joint work. It is necessary to replicate the experience of these pioneering companies in an articulation State-private sector, in order to gain space in the international markets.
Source: Elaborated by the Journalistic Team of the Magazine of the Wood
