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Brazil is no longer the "darling of the moment" - so what?

posted Jun 30, 2012, 9:26 PM by Fernando Mello   [ updated Jun 30, 2012, 10:13 PM ]
June 2, 2012

For economists, no longer being the "darling" of investors is not a reason for alarm, but the ciuntry needs structural reforms to continue making justice to the position achieved.

When The Economist posted Brazil’s landmark Christ Statue taking off in its November 2009 coverpage, the mood was euphoric. One of the world’s most respected economy magazines recognized the economic success of the country and stated that Brazil finally did justice to the B of BRIC. Some days ago, the same magazine threw a bucket of cold water on the green and yellow enthusiasm, suggesting that the most vigorous growth of the country had already past and highlighting the weaknesses that the government will have to address if the country wants to keep its place in the sun.

Such pragmatism is shared by large financial institutions such as MorganStanley and Credit Suisse, which have reduced the investment advice in the country, and by HSBC, which last week published a report assessing the country as the least interesting of the BRICs to invest the this time.

Factors such as the slowdown of economic growth - the lowest among the BRICs last year and, potentially, this year too - and the high costs of doing business in Brazil outshine the brightness of the country in the eyes of international investors. But are there real reasons for concern?

According to Octavio de Barros, chief economist at Bradesco, there is no reason for alarm. Brazil has graduated internationally and acquired a status that very few developing countries have in terms of macroeconomic and institutional maturity. Because the world today is living a period of risk aversion, virtually all of the 'darlings' of the market disapeared. This image of the 'darling' took a temporary vacation conveys the economist.

For him, the intensified caution of foreign investors is only circumstantial. “The global financial investors naturally retract with the temporary depreciation of the real and the speed of falling interest rates in Brazil, but this is just a 'sanity check', which changes nothing about the positive medium and long term outlook for the country,” he says.

The coordinator of the Strategy and the Emerging Economies Department of Fundação Dom Cabral, Aldemir Drummond, agrees with the diagnosis. "It is a moment of high uncertainty, and investors are seeking safety. This affects all the emerging countries, that are seen as a higher risk", he says.

According to Barros, the problem is that Brazil pays the price for being too liquid. "Anything bad that happens worldwide, the market sells Brazil because they know that buying back is very fast. That is, when things go well, Brazil is better than others, but when things turn down, the country suffers more than the others", says the economist.

But in spite of everything, to the experts, Brazil has not lagged behind when compared to the other BRICs and still stands out in some aspects, such as the political stability and maturity of the business environment. "Brazil is by far the most predictable and organized of the BRICSs, and offers opportunities that are compatible with the size of its economy. There are many people trying to find “hair in eggs” says Barros.


If it does not get to be a reason for pulling the hair, a more skeptical look by the market in relation to Brazil highlights some pressing issues that need to be resolved if the country wants to continue living up to the position gained in the last decade.

The homework includes structural reforms needed to pave the growth going forward. "The social and economic transformations in Brazil are so significant that it raises some debates about the new drivers of growth in Brazil over the next 10 years. Concerns are natural. It is  good that they are occurring", says Barros.

"Issues related to lack of education and government efficiency are becoming more evident as the country loses the bonus of stabilization. It is necessary to address structural issues such as improving the competitiveness. Only the credit expansion is not sufficient to sustain the growth”, Drummond argues.

For the professor, this moment is to be seen as a half-full glass - not half empty.