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Opinion

Brazil looks over the edge

BNDES spending can only prop up the economy for so long.

As the bankers gather for the 50th anniversary IDB meeting in Colombia, those few that are allowed to travel down from New York might well see the weekend as a bit of light relief from the doom and gloom of the US.

Compared with the developed world, Latin America’s largest economy, Brazil, seems to be managing to stay afloat... for the moment anyway.

Inflation is 6% and falling, the real has held relatively steady through central bank intervention and a stockpile of $200 billion in foreign-currency reserves. The IMF is still predicting a positive growth rate of 1.8% despite the global recession. The development bank, the BNDES, and the state-owned banks continue to pump liquidity into the system and provide the government with an excellent channel to stimulate growth.

In January, the BNDES received commitments from the government to invest another R$100 billion ($42 billion) in 2009 alone. The money is earmarked for struggling corporates and infrastructure projects that will boost growth and satisfy pent-up infrastructure demand, especially in the southeast. The optimism surrounding Brazil is reflected in the performance of its equity market, which is up more than 8% this year.

But as the carnival cheer dies down in Rio some fear the economic hangover is about to kick in.

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