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Friday, September 10th 2010 - 04:39 UTC

Brazil’s Real at its highest in eight months; government promises a cap

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1 JoseAngeldeMonterrey (#) Sep 10th, 2010 - 06:34 pm Report abuse

You ain´t see nothing yet, wait until they capitalise Petrobras.

2 Forgetit87 (#) Sep 11th, 2010 - 02:16 pm Report abuse

@José
This is about the Economist text you'd indicated on the Peru topic. On it I must say this: it's a bit revisionistic. It purposes to study 5 countries - Brazil, México, Chile, Peru and Colômbia - that have supposedly embraced globalization. Now, who says that? who says those countries have embraced globalization? Or who says their “success” has to do with such policy? Brazil, for instance: is it a globalized country? Imo, it isn't: it's the most protectionist country in South Am. It passes as “globalized” perhaps because the economic production carried out by the state is relatively small. Or so it seems. The state participation is actually large. The thing is, it occurs in indirect manner: for instance, by furnishing stimuli and credit, establishing partnership contracts with private enterprises, etc. - policies adopted since 2007, precisely when, as the text notices, Brazil started to grow at decent levels. When it was more plausibly globalized, from 1995 till the mid 2000s, that is to say, when it pulled back state spending and began to rely on privatization to give a new vigour to the economy, was precisely when the country's growth was at its lowest.

As for Chile, it's indeed a globalized nation. Its tariff imports, for instance, are lower even than those of the US. And it's indeed a success story. As compared to other LatAm countries, it has one of the lowest poverty rates and the highest political stability. But does that have anything to do with globalization? Yes, it has to do with trade - but there's one negative aspect about Chile's consistent trade surpluses: they relie too heavily on low value-aggregate exports. It has one of the lowest rates of hi-tech exports amongst the major LatAm country: 6%. That compares with Argentina (9%), Brazil (12%) and Mexico (19%). So, Chile's success has more to do with its natural resources. And its extreme market opening probably prevents it from building its own advanced industry. The same applies to Colombia.

3 JoseAngeldeMonterrey (#) Sep 11th, 2010 - 05:13 pm Report abuse

Forgetit87,

The Economist magazine is definitely a clear example of a gang of old orthodox economic analysts who want to continue reading macro economic events through the same old distorted keynes-friedman manuscript.

I think Brazil is a prime example of a country doing the right thing, I mean the real Right Thing, not the obsolete “right thing” the IMF wants it to be.

As a principle of faith, these economists have recommended every country to open its markets, raise their interest rates, increase their fiscal reveneues and let their currency slide in order to make their economies “more competitive” and while under certain circumstances and market conditions these measures may work, they are far from being infallible. Many countries fall into this infallible dogma, which when they find out that this formulas don´t work for them, unfortunately resort to some other equally “infallible” dogma.

Brazil has done exactly the opposite, it has protected its internal markets, and strenghten the Real.

So while Mexico, the good boy of the IMF, the World Bank and every other global governing bodies, continued opening its economy and let its currency slide, and as a result we have seen our economy dragged behind the US recession, imperiled by both internal and external factors and we have not been able to strenghten our internal market (something you pointed out in a previous thread).

Check this report that just came out at bloombergs rests your case, and mine:

www.bloomberg.com/news/2010-09-08/real-beats-mexican-peso-as-growth-insulated-from-u-s-slump-brazil-credit.html

4 Forgetit87 (#) Sep 11th, 2010 - 06:56 pm Report abuse

IMF policies are not to be applied during most crises scenarios. Fiscal austerity is not of necessity bad to the economy, specially when a country - the US, for instance - has a vigorous private sector. But cutting state spending should never be done at the same time as taxes increase. When these two are put into place at the same time, then both the state and private enterprises are prevented from increasing production. By recommending both as a remedy to countries in recession, the IMF causes their economy to, at best, stagnate.

As for Mexico's currency, I think its sliding is good for the international competitiveness of its manufactures sector. The thing is that, as you know, Mexico's top market for its industry is in recession. In my view, Mexico should either try to direct its production, industrial or otherwise, to the domestic market. This can be done by increasing wages and giving higher credit to consumers.

5 JoseAngeldeMonterrey (#) Sep 12th, 2010 - 12:11 am Report abuse

One of the problems with the banking system in Mexico was that most banks made money on very high fees, monthly and annual charges, penalizations, and on bank withdrawals from atms. So the banks were actually having a big party. The central bank got hard on them and has been taking of those fees aways to force them to start giving credits, which is supposed to be real business of a bank and the idea is that consumers could use credit and benefit from Mexico´s interest rates which are the lowest in history.
The government is now promoting all kinds of incentives to make the internal market grow.
More high tech jobs in the country mean higher salaries and there are many high tech companies coming to Mexico. Check this report out:

www.bloomberg.com/news/2010-09-08/mexico-beats-china-for-u-s-companies-undaunted-by-drug-wars.html

So I think all that Mexico has got to do is to precisely to do the right thing. I mean the real right thing.

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