These are excitingly dull times in Brazil. The domestic uncertainty of a presidential election (albeit one that increasingly looks like Dilma Rousseff’s to lose) mixes with a faltering global economy to create, well, no discernible economic effect. Rousseff, leader of the left-of-centre Workers Party, recently said in an interview with TV Globo that any cuts to steadily increasing government expenditure would be “wrong” and that to defend spending cuts is a “crime”. The real didn’t flinch on the international exchanges; capitalists and their capital took no fright or flight.
The international investment community views Rousseff’s likely (if opinion polls are to be believed) election victory with equanimity. In truth, there is little contention between the economic policies of the candidates. Whoever wins, the government will pursue the accepted trinity of economic policy: an independent bank setting interest rates to target inflation; a primary fiscal surplus; and a floating exchange rate.
Even controversy, where it is to be found among Brazil’s financiers, is telling. In July the president of Banco Central do Brasil, Henrique Meirelles, faced vociferous criticism following the bank’s decision to raise interest rates by 50 basis points – 25bp lower than had been widely expected. Meirelles said the lower than expected rise “was justified by a recent slowdown in inflation and industrial activity” (and the central bank followed July’s rise by holding the Selic’s rate at 10.75% on September 1) but he would have been forgiven for wry satisfaction about the narrowness of the terms of the argument. That 25bp can generate heated debate in 2010 is in itself remarkable. In 2003, when president Lula assumed office, interest rates were 25%.
Almost universally, investment bankers in Brazil are effusive in their praise of the central bank’s handling of the global crisis and any pre-2007 rumblings about the bank’s policies on contingent capital (its requirements are at the higher end of the international range of prescription) have evaporated as the banking system withstood the credit crunch without casualties.
The country’s securities regulator, the CVM, is held to be a model of transparency – one senior banker, speaking for many it seems, derided the US SEC’s supervision in comparison, claiming that the Madoff scam simply couldn’t have happened in Brazil.
Brazil was among the last in to the economic crisis and among the first out of it – Meirelles expects GDP growth of 7.3% this year while containing inflation at its target of 4.5%. Today Brazilian corporates have access to a wider (and cheaper) range of corporate finance products than ever before. M&A and equity markets are beyond vibrant. This year could be a record one for the Brazilian bond markets. Bankers now expect a wave of perpetual bond issuance – and if the question being asked by investors is “When will companies choose to redeem the bonds?”, and not “Will they be able to?”, then surely Brazil has redefined the parameters of its own debate.
Of course there are still risks down the road. Infrastructure needs substantial investment. Productivity proves obstinate to encouragement for improvement, although infrastructure would surely help here too, as would improvements in education. There is also going to be continuation – and probably advancement – in the government sponsoring the creation of companies and its high level of involvement in key industries.
The oil industry needs to become more efficient and weaned off its dependence on the government. High levels of taxation and regulation don’t help private enterprise either, and have caused a large grey economy. These issues don’t appear to be on the political agenda.
And yet, if viewed from the perspective of a decade ago, when Brazil’s inclusion as a Bric country by Goldman Sachs was greeted with surprise – and not a little derision – these are mere quibbles.
China, a fellow Bric nation, has a famous and ancient curse: “May you live in interesting times.” Brazil’s financial industries should be excited at the prospect of a blessing of the opposite.
