Brazil, the world's largest emerging-market debtor for decades, became a net foreign creditor for the first time in January. International reserves, swelled by investment inflows and record exports of agricultural commodities and oil, probably exceeded gross foreign liabilities last month by about $4 billion, the Banco Central do Brasil said today in a report.
Brazil's shift to net creditor status may add to already growing investor confidence in what is Latin America's largest economy and help the country achieve investment-grade rating. Brazil finished paying off its debt to the International Monetary Fund in December 2005.
Brazilian exports have tripled since President Luiz Inacio Lula da Silva took office in 2003 on rising world demand for soybeans, iron-ore, beef and cars. An accompanying surge in foreign direct investment, including stock and bond purchases by non-residents, has led the currency to appreciate to what is its strongest level in more than eight years.
International reserves, including cash and other financial assets, rose to a record $171.6 billion in January, more than ten times the $17 billion that the country had when Lula assumed power. At the end of 2003, Brazil's debt topped international reserves by $165 billion, the bank said.
Foreign bond buyers have been lured by the prospect Brazil could attain an investment grade rating this year or next, making the country's bonds the world's second-best performer over the past five years, returning 191 percent, according to JPMorgan Chase & Co. data. Only Ecuadorean bonds, which gained 234 percent, rose more.
Brazil's foreign currency debt rating of BB+ by Standard & Poor's and Ba1 by Moody's Investors Service are both one level below investment grade. Investment-grade standing gives a country greater access to international capital at lower borrowing costs.
The yield to the 2015 call date on Brazil's 11 percent bonds due in 2040, one of the most widely traded emerging-market securities, fell 9 basis points, or 0.09 percentage point, to 5.59 percent, according to JPMorgan Chase & Co. The bond's price rose 0.6 cent to 132.65 cents on the dollar.
The world economic slowdown may test whether Brazil's efforts to diversify export markets and bulk up reserves are enough to safeguard long-term growth after almost five years of record commodity exports and low borrowing costs.
An over-dependence on commodity sales abroad may cut Brazil's growth to 3 percent this year from about 5 percent should a slowing U.S. economy reduce demand, according to a Morgan Stanley report released Dec. 10.
The real rose for a fourth straight session, advancing 0.8 percent to 1.7095 per dollar today. It touched 1.7046 earlier in the day, the strongest level since May 1999. The central bank has purchased U.S. dollars in currency markets almost every day since July 2006 to slow the real's appreciation and increase international reserves.
In a separate report, the bank and the National Treasury said that local and foreign debt fell 1.7 percent to 1.31 trillion reais in January from December. The stock of local debt, which makes up 90 percent of total Brazilian liabilities, fell 1.7 percent and foreign debt dropped 1.4 percent last month, both institutions said.
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Friday, February 22, 2008
Friday, February 08, 2008
Brazil Industrial Output December 2007
Brazil's industrial production in 2007 expanded at the fastest pace in three years, fueled by domestic demand and investments to boost production. Output rose 6.4 percent in December from December 2006, pushing the annual rate for 2007 up 6 percent, twice the pace of 2006, the national statistic agency said in a statement distributed today in Rio e Janeiro. In 2004, output grew 8.3 percent.
Brazil's unemployment rate fell in December fell to the lowest since at least 2002 as companies added staff to step up output. More jobs coupled with record bank lending boosted consumption and spurred investments. Output of capital goods, which increased 19.5 percent in 2007, led industrial growth. Production of durable goods, the second best performer, rose 9.2 percent.
Brazil's central bank has kept the benchmark interest rate at 11.25 percent since September and the possibility of rate increases in 2008 to keep inflation under control remains.
Brazil's unemployment rate fell in December fell to the lowest since at least 2002 as companies added staff to step up output. More jobs coupled with record bank lending boosted consumption and spurred investments. Output of capital goods, which increased 19.5 percent in 2007, led industrial growth. Production of durable goods, the second best performer, rose 9.2 percent.
Brazil's central bank has kept the benchmark interest rate at 11.25 percent since September and the possibility of rate increases in 2008 to keep inflation under control remains.
Friday, February 01, 2008
Brazil Trade Surplus January 2008
Brazil's trade surplus narrowed to a 5 1/2-year low in January as a cheaper dollar and rising consumer demand pushed imports to a record high. Imports increased to $12.3 billion in January from $10.6 billion in December, according to the Trade Ministry today. Exports fell to $13.3 billion in January from $14.2 billion in December.
Brazil's real has appreciated 20 percent against the dollar in 12 months, the best performance among the 16 most-actively traded currencies. The cheaper dollar coupled with the fastest economic expansion since 2004 has boosted demand among Brazilian consumers for imports.
At the same time we learn that coffee exports from Brazil, which is the world's biggest producer, fell 11 percent in January from December, according to Brazil's Coffee Exporters Council.
Brazil shipped 1.81 million bags of coffee beans last month, compared with 2.03 million bags a month earlier, the council, known as Cecafe, said today in a preliminary report.
``The situation can deteriorate if the global economy slows,'' Agostini said.
Brazil's monthly imports exceeded $10 billion for the first time ever in July and have since remained above this threshold.
Agostini expects the country's annual surplus to narrow to $30 billion this year from $40 billion last year.
Brazil's real has appreciated 20 percent against the dollar in 12 months, the best performance among the 16 most-actively traded currencies. The cheaper dollar coupled with the fastest economic expansion since 2004 has boosted demand among Brazilian consumers for imports.
At the same time we learn that coffee exports from Brazil, which is the world's biggest producer, fell 11 percent in January from December, according to Brazil's Coffee Exporters Council.
Brazil shipped 1.81 million bags of coffee beans last month, compared with 2.03 million bags a month earlier, the council, known as Cecafe, said today in a preliminary report.
``The situation can deteriorate if the global economy slows,'' Agostini said.
Brazil's monthly imports exceeded $10 billion for the first time ever in July and have since remained above this threshold.
Agostini expects the country's annual surplus to narrow to $30 billion this year from $40 billion last year.
Wednesday, January 23, 2008
Brazil Central Bank Likely to Keep Rates On Hold
Brazil's central bank will probably keep its benchmark interest rate unchanged at 11.25% today for a third straight meeting as policy makers gauge whether the recent acceleration in inflation is sustained. Against the backdrop of rising prices and Brazil's fastest growth since 2004, central bank President Henrique Meirelles decided on Oct. 17 to pause after a string of 18 straight cuts, the longest cycle of easing since Brazil adopted inflation targets in 1999.
Brazil's overnight rate has fallen by more than half over this period. The real interest rate, however, - or the difference between the 11.25 percent Selic benchmark lending rate and 4.46 annual inflation - is the sill highest in Latin America at 6.79 percent.
Policy makers will probably take the view that a worldwide economic slowdown will reduce Brazil's inflation rate by cutting demand for commodities, even after consumer prices jumped the most in more than two years in December. Inflation accelerated to 0.74 percent last month, led by food, the fastest pace since October 2005.
Rather than raising the central bank is much more likely to say that it will continue to monitor inflation to see whether it threatens its 4.5 percent target.
On the other hand, traders are forecasting higher rates. The yield on the interbank deposits future rate contract due January 2009 traded at 11.97 percent yesterday, above the current Selic rate.
Brazil's overnight rate has fallen by more than half over this period. The real interest rate, however, - or the difference between the 11.25 percent Selic benchmark lending rate and 4.46 annual inflation - is the sill highest in Latin America at 6.79 percent.
Policy makers will probably take the view that a worldwide economic slowdown will reduce Brazil's inflation rate by cutting demand for commodities, even after consumer prices jumped the most in more than two years in December. Inflation accelerated to 0.74 percent last month, led by food, the fastest pace since October 2005.
Rather than raising the central bank is much more likely to say that it will continue to monitor inflation to see whether it threatens its 4.5 percent target.
On the other hand, traders are forecasting higher rates. The yield on the interbank deposits future rate contract due January 2009 traded at 11.97 percent yesterday, above the current Selic rate.
Friday, January 18, 2008
Capital Flows Into Brazil
The following article from the Financial Times provides more information and details on this process:
Brazil surprises with surge in foreign cash
Barely a day goes by in São Paulo, Brazil’s biggest city, without news of more foreign investment, and this week has been no exception.
Anglo American, the mining giant, said on Thursday it would pay $5.5bn (€3.7bn, £2.8bn) to buy control of two iron ore mines from Brazilian company MMX. And a couple of days ago, news emerged that Symetrix, a US chip company, was investing $1bn to make smart cards.
Flows of foreign direct investment are surging. For much of this decade Brazil’s attractions have paled beside those of other gigantic emerging markets, China, India and Russia, hitherto the most rapidly growing of the BRIC countries. But in the past few months Brazil has begun to do better.
Figures published last week by the United Nations Conference on Trade and Development showed Brazil won twice as much foreign direct investment as India in 2007 and its investment grew at a faster rate than that of Russia or China.
Total flows of $37.4bn were more than double the amount Brazil attracted in 2006 and also, in nominal terms at least, higher than flows attracted at the beginning of this decade when a privatisation campaign was in full swing.
Chinese investment dipped to $67.3bn compared with $69.5bn in 2006, while Russia brought in $48.9bn, 70 per cent more than in 2006.
“It was a surprise,” says Antonio Côrrea de Lacerda, an economist with Sobeet, a Brazilian think-tank on transnational companies, who had been expecting Brazil to attract only about $25bn. “The rest of the world is growing but Brazil is now getting a good share of the increase.”
Why has Brazil been doing so well? Part of the story is that the country is rich in the natural resources – such as oil, soya beans and iron ore – for which world demand has been growing. In the first 11 months of 2007, Brazil attracted $3bn into its mining sector, almost six times as much as in 2006.
The recent investment success is much broader, however. Central bank figures for the first 11 months show that more than a third of overall inflows have been directed to manufacturing.
Brazil’s highly competitive steel industry is one focus. Lakshmi Mittal, president and chief executive of Arcelor Mittal, the world’s biggest steel company, is an enthusiast.
Last year, he oversaw a big expansion at his company’s Tuburão complex and in December made a $1.75bn offer to buy the 43 per cent stake Arcelor Mittal did not already own in Acesita, a stainless steel maker.
Mr Mittal plans to spend another $5bn over the next five years to increase annual capacity by more than 40 per cent.
Billions of dollars have been pumped into the ethanol sector, where Brazil’s experience and technical expertise is an important advantage.
As Andrew Liveris, chairman and chief executive of Dow Chemical, explains: “When it comes to biofuels and related products, Brazil is the leader. The US is thinking about it. Brazil is doing it.”
But much of the interest is related to Brazil’s own im-proving macroeconomic prospects. Cautious monetary and fiscal policy has stabilised the economy and paved the way for a steady expansion of domestic credit.
Sectors oriented to the domestic market, such as construction, are surging. Growth, which reached 5 per cent in 2007, is disappointing compared with that of China or India, but investors are increasingly confident that the wider domestic demand and rising rates of capital formation will allow Brazil to survive a slowdown in the US economy relatively unscathed.
Yet even some who are investing in Brazil express concern about obstacles to growth.
Marcelo Mosci, head of GE for Latin America, says failure to improve business conditions through labour and other reforms will create trouble ahead. “There are two Brazils. Investment is growing, the private sector is doing a terrific job. But [because of lack of reform] Brazil is hitting a big road block,” he says.
For the moment, none of this is denting enthusiasm. As Emy Shayo, an economist with Bear Stearns, puts it: “People are totally in love with Brazil. Investors come here and they think it is the best country in the world.”
Brazil surprises with surge in foreign cash
Barely a day goes by in São Paulo, Brazil’s biggest city, without news of more foreign investment, and this week has been no exception.
Anglo American, the mining giant, said on Thursday it would pay $5.5bn (€3.7bn, £2.8bn) to buy control of two iron ore mines from Brazilian company MMX. And a couple of days ago, news emerged that Symetrix, a US chip company, was investing $1bn to make smart cards.
Flows of foreign direct investment are surging. For much of this decade Brazil’s attractions have paled beside those of other gigantic emerging markets, China, India and Russia, hitherto the most rapidly growing of the BRIC countries. But in the past few months Brazil has begun to do better.
Figures published last week by the United Nations Conference on Trade and Development showed Brazil won twice as much foreign direct investment as India in 2007 and its investment grew at a faster rate than that of Russia or China.
Total flows of $37.4bn were more than double the amount Brazil attracted in 2006 and also, in nominal terms at least, higher than flows attracted at the beginning of this decade when a privatisation campaign was in full swing.
Chinese investment dipped to $67.3bn compared with $69.5bn in 2006, while Russia brought in $48.9bn, 70 per cent more than in 2006.
“It was a surprise,” says Antonio Côrrea de Lacerda, an economist with Sobeet, a Brazilian think-tank on transnational companies, who had been expecting Brazil to attract only about $25bn. “The rest of the world is growing but Brazil is now getting a good share of the increase.”
Why has Brazil been doing so well? Part of the story is that the country is rich in the natural resources – such as oil, soya beans and iron ore – for which world demand has been growing. In the first 11 months of 2007, Brazil attracted $3bn into its mining sector, almost six times as much as in 2006.
The recent investment success is much broader, however. Central bank figures for the first 11 months show that more than a third of overall inflows have been directed to manufacturing.
Brazil’s highly competitive steel industry is one focus. Lakshmi Mittal, president and chief executive of Arcelor Mittal, the world’s biggest steel company, is an enthusiast.
Last year, he oversaw a big expansion at his company’s Tuburão complex and in December made a $1.75bn offer to buy the 43 per cent stake Arcelor Mittal did not already own in Acesita, a stainless steel maker.
Mr Mittal plans to spend another $5bn over the next five years to increase annual capacity by more than 40 per cent.
Billions of dollars have been pumped into the ethanol sector, where Brazil’s experience and technical expertise is an important advantage.
As Andrew Liveris, chairman and chief executive of Dow Chemical, explains: “When it comes to biofuels and related products, Brazil is the leader. The US is thinking about it. Brazil is doing it.”
But much of the interest is related to Brazil’s own im-proving macroeconomic prospects. Cautious monetary and fiscal policy has stabilised the economy and paved the way for a steady expansion of domestic credit.
Sectors oriented to the domestic market, such as construction, are surging. Growth, which reached 5 per cent in 2007, is disappointing compared with that of China or India, but investors are increasingly confident that the wider domestic demand and rising rates of capital formation will allow Brazil to survive a slowdown in the US economy relatively unscathed.
Yet even some who are investing in Brazil express concern about obstacles to growth.
Marcelo Mosci, head of GE for Latin America, says failure to improve business conditions through labour and other reforms will create trouble ahead. “There are two Brazils. Investment is growing, the private sector is doing a terrific job. But [because of lack of reform] Brazil is hitting a big road block,” he says.
For the moment, none of this is denting enthusiasm. As Emy Shayo, an economist with Bear Stearns, puts it: “People are totally in love with Brazil. Investors come here and they think it is the best country in the world.”
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