The effects of the international credit crisis has provoked an exodus of US$ 4.397 billion in Brazil from the 1st of October to the 24th. This number is the difference between the amount of dollars entering the nation and the amount leaving; just last week, there was an exit of US$ 646 million.

 

The data is part of the monetary flux that monitors the movement of dollars both entering and exiting Brazil and was divulged this Wednesday by the Central Bank. For the entire year of 2008, the monetary flux registers a positive gain of US$ 12.791 billion. The result of US$ 45 billion entering and US$ 32.214 exiting the nation.

The House of Representatives approved last night the MP 442/08, which gives the Central Bank the power to accept the credit portfolios of banks facing difficulties with liquidity as guarantees of loans. The BC is also authorized to lend directly from the nation’s international reserves (around 200 billion dollars) to banks that finance exporting companies. The measure is now being analyzed by the Senate.

 

The text was approved with changes. The reporter, Representative Rodrigo Rocha Loures (PMDB-PR), highlighted four of the seventy-four amendments presented. One of the changes is that the BC has to send every trimester a report to the Congress including: the total value for the trimester and the value accumulated for the year of the loans; the financial conditions of the applied measures (discount and spread, for example); the accumulated value – annually and Quarterly – of credit (paid on time or late); and an explanation of the impact these operations described in the BC’s results.

 

This information will be debated at the Biannual meeting that occurs between lawmakers and the president of the BC, as outlined by the Fiscal Responsibility Law (Complementary Law 101/00).

 

The national monetary aid comes in the following form: a bank having difficulty capturing money on the market, but has a low risk credit portfolios, can “sell it” to the BC with the agreement to repurchase it, as a loaning operation known as rediscount. The credit portfolios are composed of values that the bank have the right to receive, in the form of legal and individual debts.

 

From the value of this credit, the provision (value to cover the debt should the credit not be honored) will be deducted. What remains will have a discount (percentage variable according to the credit’s evaluation) applied to it.

 

Additionally, the BC will be able to accept a physical guarantee (property, for example) or financial one given by the controlling stock holder of a united company or other bank.

 

The text approved by the House of Representatives also stipulates that there are transparent rules and not discrimination for the acceptance of actions in a rediscount operation.

 

In November, the House of Representatives should vote a second MP against the crisis: 443/08, which authorizes the BC and Caixa to purchase banks having difficulties.

Brazil was slow in reacting to the worsening of the North American crisis. Not with regards to decisions, but in gestures and declarations, in other words “vocal administration”. Brazil, as the rest of the world, expected things to improve following the approval of the North American rescue package. However, what followed was a panic reaction and the Brazilian currency was attacked. Curiously, while the dollar skyrocketed, between September 1 and October 6, Brazil accumulated an ingress of dollars with a net positive balance of over 3 billion.

 

Only after the two meltdowns of the Stock exchange on Monday, Mantega and Meirelles appeared together to come the markets down. The episode opened up a margin for various interpretations. Henrique Meirelles, as president of the Central Bank, has a delimited margin of public action. He cannot speak about expenditure cutbacks or anticipate monetary or exchange-rate policy decisions.

 

When he was president of the American Chamber of Commerce in São Paulo, Meirelles heard Pedro Malan, who at the time was FHC’s minister, state that one doesn’t ask a political person about exchange policy. His attitudes are motive for action and not for public discussion.

 

With Meirelles taking care of the “back-office”, it is up to Guido Mantega take action to calm the market down in relation to economic issues: revenue collection, expenditure, growth, etc. Mantega did not act, as the Castilians say, with “protagonism”.  For some, he lacks the necessary charisma to be a Minister in times of crisis. Lula’s candidate Dilma Rousseff also disappeared.  She had nothing to say.  She probably felt it better not to commit herself to anything. Focusing her attention on the consolidation of her candidacy, she acted aloof up to the weekend, when she said what she really didn’t have to say about help for companies that suffered losses due to the skyrocketing dollar. “The government has no intention of socializing any losses and has not been approached by any company in this sense”, she stated.

 

The spokesperson role was left to Lula. Firstly, he stated that the crisis would not cross the Atlantic. Then, that it was global. Further ahead, that we may have to make cutbacks. Without a qualified spokesperson to address the market and society, now and then, the President transforms himself into a “Minister of Finance”.

 

It’s clear that the government lacks a figure like Antonio Palocci, who transmits security to the market, companies and economic agents.  In fair weather sailing, it’s easy to be the Minister of Finance of a country that is raking it in, has abundant reserves, a healthy financial system, plenty of credit from BNDES (and other public and private institutions), food and energy self-sufficiency and a president with enormous popularity and support from labor union and business leaderships, amongst other advantages. Most importantly, in a world that was doing very well.

 

With the crisis, besides the technical competence of the team, there is a psychological component that moves market decisions. Thus, the currency was attacked at a moment in which reserves were extremely high, the foreign exchange balance positive and also the capability of raising some US$ 50 billion from the IMF. When the situation gets complicated, the minister’s “protagonism” becomes fundamental. Not only as far as decisions are concerned, but most importantly, as far as attitudes and dialogue with society and the market are concerned.

The FED-Treasury-Congress package against the US financial crisis will have a strong impact on the economy. Put together during the early hours of Friday, it has already produced its first effect: even though the market is still at the bottom of the barrel, it has begun to move towards the exit.  The main consequences will be as follows:

 

FOR THE WORLD	FOR BRAZIL
Two or three semesters of negative US GDP	2.5% GDP in 2009
Drop in Chinese growth from 11% to 8%	4.7% inflation under control due to a slowing down of the economy, but above the 4.5% target
Recession in Latin America and India	Main victims of an expensive dollar due to stock exchange losses – export companies
Bankruptcy of Russian banks	Civil Construction –negative impact during second semester of 2009/ first of 2010
Second semester/2008 and the whole of 2009 worse than forecast here

 
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