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Archive for October, 2008

Brazil is perhaps one of the few countries in the world that hasn’t been talking about recession. The R word is not being mentioned in any of the large newspapers in the country. Moreover, Brazil’s economic team will unveil new credit measures for exporters suffering the consequences of the liquidity crunch. “For now, activity levels haven’t come down,” said Finance Minister Guido Mantega. “I believe there will be a slowdown in consumption and in activity level in Brazil. But we will not have a recession.” The main news agencies in Brazil have also reported that the series of measures the central bank has taken to minimize the impact of the crisis in the South American giant and to ease the liquidity crunch started by  investors not willing to take too much risks at the moment. This latest move is aimed at Brazilian exporters.

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The Washington Post today compares the biofuel industry in the US and in Brazil. If on one side the American public opinion is in doubt about ethanol’s green credentials, the tecnology in Brazil has overcome all the obstacle and today produces a greener, cheap alternative to gasoline. The production of ethanol in the South American giant is the most efficient in the world and Brazilians consume more of it than gas.

According to a report released in June by the Organization for Economic Cooperation and Development, ethanol from sugar cane is the cleanest fuel in the world, with its production and consumption reducing emissions of greenhouse gases by up to 90 percent compared with gasoline. The process of transforming sugar cane into ethanol requires eight times less energy than corn.

Unlike corn, which accounts for the bulk of U.S. ethanol, sugar cane is also grown in areas where it is less likely to compete with grains such as wheat or other varieties of maize that are vital to global food supplies. Sugar-based ethanol’s negligible impact on world food supplies is one of the major reasons it has been embraced without controversy in Brazil, even as critics in the United States have assailed their domestic corn-based industry for driving up global grain prices.

Sugar ethanol is also more efficient. The cost of producing ethanol from corn is three times the cost of ethanol from sugar cane. An acre of sugar cane can also yield more than twice as much ethanol as an acre of corn.

Read the article in full here.

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Fresh news from Reuters reveal that the Brazilian banks are in extremely good shape, thank you very much…

Brazil’s two largest private-sector banks reported strong third-quarter earnings on Monday and said they would continue to take advantage of the current market turmoil to snap up loan portfolios from smaller rivals in distress.

Banco Bradesco (BBDC4.SA: Quote, Profile, Research, Stock Buzz) and Banco Itau (ITAU4.SA: Quote, Profile, Research, Stock Buzz) sought to allay concerns that they might be vulnerable to the recent devaluation of the Brazilian real BRBY against the U.S. dollar by disclosing their exposure to foreign currency derivatives.

Both banks have benefited from surging demand for consumer loans in Brazil’s fast-growing economy at a time when the global credit crunch has pummeled financial firms from the United States to Europe.

Strong loan growth helped Bradesco (BBD.N: Quote, Profile, Research, Stock Buzz), the top private-sector bank in Brazil, post a 3.2 percent increase in third-quarter net profit to 1.91 billion reais ($823.3 million).

Itau (ITU.N: Quote, Profile, Research, Stock Buzz) was not scheduled to report earnings until Nov. 4 but rushed out its results because of the turmoil in financial markets. It posted a quarterly profit of 1.8 billion reais ($775.9 million), up 14.6 percent from a year earlier.

Read the full article here.

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“There are good reasons (…) to believe that Brazil’s economy is resilient to the global financial crisis”. This was the conclusion of Mauricio Cárdenas, Senior Fellow and Director of the Latin America Initiative at Brookings Institution, in an articled published on RGE Monitor. Holding a Ph.D. in economics from the University of California, the analyst has also expressed great optismism for the perspectives of the Brazilian re-industrialization strategy, much due to increasing investment in steel, petrochemicals and defense equipment.

Brazil’s foreign reserves are now $205 billion, four times higher than in 2004. Financial intermediation, though low for developed country standards, is conducted primarily by domestic institutions. Only 30 percent of bank assets are foreign-owned, compared to over 80 percent in Mexico. To the extent that Brazilian banks also have very low foreign liabilities, the economy is somewhat protected from a major credit contraction in international financial markets.

The article is concluded by the assurance that the Brazilian government has learned from mistakes committed in the past.

In fact, the government is launching a re-industrialization strategy, with high investment in steel, petrochemicals, and defense equipment (including construction of its first atomic submarine). Is this going to revive the white elephants of the 1960s and 70s? Probably not. This time around the development strategy in Brazil is carried out by the private sector, with limited support from the government, and much better governance structures than in the past. If these fundamentals can remain strong, Brazil may yet dodge the current global economic bullet.

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Excellente article from the Financial Times:

At Fábio Marangoni’s printing works in São Paulo, pages of glossy magazines emerge almost silently from modern printing presses imported from Germany.

Asked how much he borrowed to install the presses, Mr Marangoni replies with an air of self-satisfaction.

“Nothing,” he says. “We used our own capital.” His family-owned business will be 50 years old next year. “During that time we’ve seen the currency go wildly up and down. Our raw materials and machinery are priced in dollars, so we’ve always taken care to use our own money. It means we have grown more slowly than otherwise. But it’s worth it. Look what’s happening now.”

Mr Marangoni’s caution has not shielded him entirely from the chaos in the world’s financial system. Credit conditions have tightened and consumers and businesses are putting spending plans on hold.

Nevertheless, Brazil should emerge relatively unscathed. Economists who previously expected growth of between 4.5 and 5.5 per cent next year now expect between 2.5 and 3.5 per cent – by no means bad compared with the global outlook.

Not all companies have been as conservative as Mr Marangoni’s. Grupo Votorantim, an industrial conglomerate, said on Friday it had paid R$2.2bn ($958m) to liquidate positions in currency derivatives. It was the third large company to announce big losses on currency bets and is unlikely to be the last.

Local media are talking of “the Brazilian subprime”. Some observers expect to see bankruptcies as more exporters are forced to admit that they exposed themselves beyond sensible limits to currency contracts that worked in their favour during the real’s long rally from R$3.95 to the US dollar in October 2002 to R$1.56 in May this year but which turned against them during its subsequent fall.

On the whole, however, Brazilian companies are much less indebted than their foreign competitors. The total amount of credit in Brazil was equal to 38 per cent of gross domestic product in August, much less than in many developed countries. where credit reaches multiples of GDP.

Economists and business leaders have long been calling on the government to enact spending reforms to release more money to finance investment and consumption through credit. There has indeed been a consumer-led acceleration of growth in the past few years, as lower interest rates, rising employment and enduring economic stability have encouraged borrowing.

Read the article in full here.

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The Information Company has produced Join Us – The Era of Collaboration a series of programs about collaboration for the Brazilian channel Ideal TV. The program features exclusive interviews with the companies in the US that are leading the 2.0 revolution in San Francisco and Seattle. Organizations such as Wikipedia, Prosper, Craigslist, Google, CityCar Share, Linkedin and many others. The program, formed by 5 episodes, is been aired every Monday and will soon be available online. In the meantime you can get a glimpse of how collaboration is transforming the world here or below.

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Eric Farnsworth, Vice President of the Council of the Americas, has produced a special report for the October issue of Poder Magazine called Brazil Rising. In it Farnsworth says that the next US administration should necessarily work with the South American nation on matters such as trade negotiations, energy security and even Iran’s nuclear program.

“Virtually all the economic news coming out of Brazil these days is positive, and Brazil’s global weight has dramatically increased as a result. The largest economy in South America and now the world’s 10th largest, Brazil’s emergence as a middle-income BRIC nation, with powerful growth rates driven by the global commodities boom, have repositioned Brazil as a global actor”, he said. Here is a recent clip he also produced talking about Brazil:

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