MercoPress. South Atlantic News Agency

Brazil: Good and bad news.

Brazil managed a 10,2 billion US dollars trade surplus during the first half of 2003, in line with the government's target of annual overseas sales of 68 billion US dollars for the twelve months.

Exports in the January-June period reached a record 32,6 billion US dollars, a 32,5% increase over the same period of 2002, while imports grew 1,3% totalling 22,3 billion US dollars.

The average monthly export figure in these first six months was 5,5 billion US dollars, compared to the 4,2 billion of a year ago. In the second half of 2002, exports reached an average 5,9 billion US dollars, but Brazilian officials are confident that foreign trade will remain strong, and even above that monthly figure.

During the first half of 2003 commodities as well as manufactured and semi manufactured goods did exceedingly well: 9,5; 17,6 and 4,8 billion US dollars.

However in the second half Brazilian exporters will not be as incentivated as a year ago when the local currency, Real, dropped dramatically against the US dollar reaching 3,65 because of the electoral uncertainties.

The exchange rate now stands at 2,80 Reales to the US dollar which makes Brazilian goods dearer and theoretically more costly to produce.

Luiz Fernando Furlan Development, Industry and Foreign Trade Minister estimates that if the exchange rate ends 2003 in the range of 3,20 Reales to the US dollar, the year's average will help to sustain the Brazilian export boom.

"The ideal exchange rate for exporters would be in the range of 3 Reales to the US dollar", said Mr. Furlan.

The current Brazilian administration in office since last January has targeted 100 billion US dollars exports by the end of its four year mandate. In 2002 exports reached 60,3 billion US dollars and this year should be close to 70 billion US dollars.

But the other non bright side of the coin is that Brazilian exports have been booming because domestic demand has remained flat, forced by exceptionally high interest rates, and unemployment reached a record 20,6% last May in metropolitan Sao Paulo, the heartland of industrial Brazil.

The 20,6% rate, almost similar to April, means 1,95 million of economically active population are out of a job, the highest rate since 1985.

President Luiz Inacio Lula da Silva administration is obsessed with bringing down inflation even if it means slower economic expansion which explains the extremely tight monetary and credit policy. The basic inter-bank rate is 26% and annual inflation for 2003 is estimated in the range of 10/11%.

Average real income between April 2002 and April 2003 in metropolitan Sao Paulo actually dropped 10,5%.