Brazil In and After the Global Crisis: A Reemergence?

Transcription

1 Brazil In and After the Global Crisis: A Reemergence? Abstract Unexpected Outcomes across the Pacific Rim: The Quick Rebound of Emerging Markets from the Global Crisis 1 San Diego International Studies Association Meeting April 2, 2012 Maria Antonieta Del Tedesco Lins 2 The international financial crisis found the Brazilian economy in one of the best moments of its recent economic history. This favorable environment resulted from the efforts for macroeconomic stabilization, also made possible by political stability, in a prosperous world economy environment. Macroeconomic stability was preserved as a government policy from the start of Lula da Silva s first term in Together with the maintenance of the macroeconomic model, previous reforms in the financial system, more concentration and a relatively low openness in the sector protected Brazil from a deeper contagion during the crisis. When it worsened, a set of expansionary public policies was already in place. Brazilian government responded to the crisis with more strongly expansionary measures, most of traditional inspiration. Monetary and fiscal measures were combined with a sharp increase in credit by federal banks. The policies stimulated domestic markets and the economy recovered fast. Brazilian banking system passed seemly safe through the crisis. The paper retraces Brazilian policies during the crisis. It also investigates the degree to which Brazil s favorable economic performance and its consequences in terms of foreign exchange reserves accumulation and currency appreciation was an asset in improving Brazil s bargaining position in international forums such as the G Introduction In 2007 and 2008 and by the worsening of the international crisis, the Brazilian economy was performing quite well. Brazil was with no exaggeration - in one of the best moments of its recent economic history. This favorable environment resulted from the efforts for macroeconomic stabilization, also made possible by political stability. That is, the current economic success has been determined not only by occasional, exogenous factors, as the so much propelled high commodities prices, but also by an institutional factor. One may even wonder if the good international scenery could have been properly directed to domestic development had the PT s (Workers Party) government decided to simply abandon the policies previously adopted following the Real Plan, as argued during the 2002 electoral campaigns. 1 This version is a draft still under revision. Please do not cite. Comments are welcome. Research assistance of Leandro Pignatari Silva is gratefully acknowledged 2 Institute of International Relations, University of Sao Paulo, Brazil.

2 Macroeconomic stability was, actually, preserved as a government policy from the start of Lula da Silva s first term, and that was responsible for important gains in personal income and reduction of income inequalities. Economic policies, thus, combined with expansion in the world s economy stimulated investments and foreign capital to substantial increases. The country received good ratings from international agencies, records of foreign direct and portfolio investments and the real continued its sharp appreciation path. The Brazilian economy appears to the world with a potential to be developed. Even still needing to meet a broad reform agenda, the crisis did not reach Brazil strong enough to take it away from the prosperity road. This set of benign factors has been allowing Brazil to build and maintain a position of international prominence and increasing political relevance, perhaps proportionally higher than its actual weight in the global economy. As stated before, Brazil s new position is the undeniable consequence of its long and medium term changes in domestic policies. This paper discusses the Brazilian economic situation in the face of the international crisis of First of all, it seeks to present the changes in economic policy and financial markets that protected the Brazilian economy from the worst effects of the international crisis. Then it presents the main countercyclical policy measures taken by the government to avoid a recession and some indicators of economic performance. Finally, the article argues that the rearrangements on countries relative positions after the international crisis, given its domestic improvements, mainly concerning macroeconomic stability, allowed Brazil gain a significant influence in global forums. 2. Economic and institutional environment Macroeconomic policies and political stability were the main ingredients of the Brazilian recent economic success. When Lula da Silva won the 2002 presidential election, the continuity of the macroeconomic policy model was not taken for granted. In fact, international investors and markets feared, as did Brazilian largest corporations, the political transition, which was illustrated by the capital outflows and the currency depreciation during the election period. Despite strong opposition from sectors within the Workers Party, the economic policy has been maintained as one of the pillars of the new government directives and the transition of policy makers teams was remarkably smooth. 2

3 The recent Brazilian economic history had not seen so long a period prescribed for continuity and consistency in policies coupled with political stability in a democratic environment. From 2003 to the outbreak of the international crisis in 2007, Brazil achieved a steady improvement in its external accounts, with relative control of inflation rates and economic growth, even at levels well below other emerging economies in Asia, for example. This auspicious movement occurred in both the domestic front, as on the external. Regarding the internal market, there was a resumption of investment and gradual increase in household consumption, the more intense since 2006, in line with the reduction in interest rates. The impulses to the external sector came primarily by higher demand for commodities as a result of expansion in most developed countries and China. In addition to the maintenance of economic policy, the government of the Workers Party adopted a set of measures to stimulate economic activity and specific sectors - identified as strategic to the success of other policies such as social policy. The construction sector was one of the major beneficiaries and the effects of its growth are a direct increase of the country s investment rate. The crisis hit the Brazilian economy through the same channels by which all the other countries were affected: the restriction of credit and liquidity and the reduction of international trade. The more direct economic policy responses should, therefore, act on the domestic markets, exports and the financial system. Brazil was somehow working on these issues some time before the crisis worsening.in short, when the crisis began, Brazil had already put in place a set of expansionary policies that were expanded especially since the second semester of 2008, as in most countries. Regarding the financial system, Brazil was also quite protected, ironically by a certain underdevelopment or limitations of this sector. The history of chronic inflationary process shaped, over time, the functioning of financial institutions. Financial intermediaries high inflationary revenues, the uncertainty that limited the long-term planning by households and businesses tightened the full development of credit markets since the 1980s. With stabilization, a profound restructuring of markets took place, leading to the disappearance of several institutions and promoting a higher markets concentration. The whole process led to a decrease in the number of public banks privatization of state banks and strengthening the federal banks that remain, the entry of large foreign banks and even greater concentration among domestic private ones leading to more competition among larger institutions, or, more often than not, arrangements that reduce custumers choice. This will prove particularly tricky in the crisis context when private banks were unwilling to lower their rates and expand credit, forcing state banks to take the initiative. 3

4 These moves to reorganize the financial system, coupled with fairly rigid directives of financial supervision and a relatively low degree of openness ensured that the amount of international operations of the financial system was not high enough to set up a situation of high vulnerability and dependence on external funds. Although not completely shielded from the effects of global crisis, the Brazilian financial system was not fully exposed to the increases in global risk as the institutions in developed countries. In addition, an incisive action of federal banks and the expansionary monetary policy made the liquidity crunch not very long lasting. 3. Countercyclical Policies Brazilian government s reactions against the global financial crisis were similar to those adopted in almost all parts of the world. Expansion of liquidity, tax cuts, measures to stimulate the domestic market, and, benefitting from the comfortable situation of federal banks accounts, a strong increase in credit. A summary of the main measures taken during the critical moments of the crisis is presented below. They were concentrated in three major areas: fiscal policy, monetary policy and credit increase by federal banks. It is important to notice that no radical measures such as primary monetary expansion were used. They were not necessary since the downturn in economic activity in a longer perspective was not very deep. 4

5 Fiscal policy Table 1. Fiscal Policy Measures during the Crisis: Tax Exemptions Date Measure Expected Results 05/14/2008 Suspension of PIS (Social Integration Program) and Cofins (Social Security Financing Contribution) on wheat until the end of the year. 12/11/2008 IPI (Tax on Industrialized Products) exemption for 1.0 cars and reduction for engines ranging from 1.1 to 2.0, from 13% to 6.5%. R$ 500m worth fiscal renounce. To spur demand given the slump in sales and production of vehicles in the previous couple of months, integrating the government anticrisis package. 12/18/2008 IPI exemption for trucks. Helping the automotive industry to recover sales level and to guarantee jobs. 03/03/2009 Reduction of federal taxes on the construction sector, from 7% to 1%. 03/30/2009 Extension of IPI reduction for the purchase of new cars. Stimulate civil construction and assure economic dynamism. Jobs maintenance in the assembly lines. Automotive industry is responsible for 23% of the industrial GDP. 04/17/2009 IPI reduction for home appliances. R$511m worth fiscal renounce. 06/29/2009 IPI reduction for machinery and equipment. R$ 414m worth fiscal renounce. Taxes exemptions were mainly concentrated in construction material and automobile industry and for a period in durable consumption goods. The stimuli to the construction sector were established since the beginning of the Lula da Silva government and were part of a broader housing policy, linked to the social policy program. Car industry has traditionally obtained benefits. In general, the tax reduction was primarily focused on the internal market economic activities and those with high multiplier effect. As the crisis weathered, though, most of the fiscal laxity was kept in place, this time in order to boost the campaign of Lula s much less charismatic successor, Dilma Rousseff. All along 2010, therefore, tax breaks were extended and new expenditures created. Despite of budget cuts and a spending freeze in the beginning of the year, the government struggled to meet its primary surplus target and created a skewed policy mix. Following the stimuli, domestic demand boomed and so did inflation. Instead of collaborating, though, the finance ministry and the Central Bank took different paths. It was for the latter to hold the economy and tame prices. 5

6 Monetary policy Table 2. Monetary Policy Measures during the Crisis: More Liquidity Date Measure Expected Results 10/02/2008 Central Bank offers drawback on compulsory loans for banks. 40% of time compulsory loans can be accounted as drawback in the purchase of medium- and small-sized banks assets. 10/06/2008 Central Bank may substitute R$150 billion in leasing companies issued papers for leasing bonds. 10/08/2008 Central Bank lowers from 8% to 5% the additional reserve requirement rate on transactions deposits and raises the minimum value for the reserve requirement on time deposits from R$300 million to R$700 million. 10/13/2008 Full releasing of reserve requirements on time deposits, interfinancial deposits and additional reserve requirement on transactions and time deposits. 10/27/2008 Central Bank once more changes the reserve requirements: banks can anticipate the payment, in up to 60 times, the value of the August contribution to the Credit Guarantor Fund and they can discount the amount from the transactions reserve requirements whose rate is 42%. 10/30/2008 Central Bank changes the rule as for the way on time reserve requirements are collected: 30% of the due amount should be collected as public bonds and the remaining as fiat currency, without remuneration. 11/13/2008 Central Bank changes additional reserve requirements: from December 1 st, time deposits, transactions deposits and savings deposits will have their reserve requirements collected as public bonds and no longer as fiat currency. 03/26/2009 Central Bank extends flexibility for bank reserve requirements. 09/28/2009 Central Bank changes reserve requirements rules, including reference values for discount and collecting method for time deposits. 02/24/2010 Central Bank begins to reestablish reserve requirements rules. Time deposit rate is restored at 15%, collection returns to be made exclusively in fiat currency remunerated by the Selic rate. Additional requirement returns to 8%. 06/25/2010 Central Bank raises reserve requirements on transaction deposits to 43%. A chronogram was set to restore the precrisis level: July 2012, rise to 44% and July 2014 return to 45%. 12/03/2010 Central Bank raises reserve requirements on transaction and time deposits. The rise is from 15% to 20% regarding time deposits and from 8% to 12% in the additional rate on time and transaction deposits. Releasing of approximately R$23.5 billion in public bonds. Grant more liquidity and control over de market. Provide liquidity releasing R$23.2 billion. R$100 billion expected injection according to market liquidity needs. Injection of up to R$6 billion in the financial market. Spur the purchase of assets and other papers providing liquidity to small- and medium-sized banks. Releasing of up to R$40 billion to banks. Update the rules in light of the current conditions of Brazilian economy without changing the system s liquidity. Collection of R$71 billion. Rise of collection in R$1.6 billion. Collection of additional R$61 billion. 6

7 The monetary policy measures have focused on alleviating the reserve requirements of banks. At first, the reserves of financial institutions whose activities were related to long-term investments were released. There was also a concern to facilitate exchanges of assets and deposits among financial institutions. However, soon after the economy has given clear signals of recovery and concerns about inflation went back into the agenda of policy makers, the central bank rose again the reserve requirements. This was a clear sign of the effects of countercyclical policies in the Brazilian economy: having armored the economy against the worst of the external shocks, fiscal expansionism was maintained as government policy beside monetary tightening. The outcome was high growth, high interest rates, massive exchange appreciation and inflation. Federal banks The increase in credit by state-owned banks was a very important instrument of countercyclical policies. It is well-known that the crisis has intensified and spread worldwide by strangling credit. Amidst a scenario of restricted liquidity and a credit squeeze, Brazilian government used a powerful instrument at hand: its three federal financial institutions, which expanded credit when private counterparts adopted a cautious attitude. 7

8 (jan) Graph 1. Public, private and foreign bank lending as percent of GDP, Jan ,0 40,0 30,0 20,0 10,0 0,0 Public Private Foreign Source: Central Bank of Brazil Despite the crisis, from 2007 to 2011, total credit increased in Brazil and public financial institutions almost doubled their share in total credit compared to BNDES (Banco Nacional de Desenvolvimento Econômico e Social), the federal development bank, is responsible for the essential part of investment financing. BNDES expanded loans sharply since The bank operates mainly with federal funds and received transfers from the National Treasury, which raised criticism by the public. Not only during the crisis, but as a general trend in recent years, the bank is filling the void of long-term financing, which is not sufficiently provided by private institutions. The problem lies in the political motivations such loans can have. The transfer from the Treasury, for instance, was given without conditionalities, a blank check, eventually used to buy Petrobras assets, in what turned out to be an accounting manoeuver responsible for the fiscal surplus in

9 Graph 2. BNDES total disbursements, annual growth rate 50,0 40,0 30,0 20,0 10,0 0,0-10, ,0-30,0 Source: BNDES The Graph shows a 17% reduction of BNDES disbursements in comparison with This is due to a special operation of capitalization of the Brazilian oil company, Petrobras made in Overall, the disbursements remained at a high level, compared to the historical bank s standards. Banco do Brasil, Brazilian largest bank, despite its commitment to safe operating standards and profitability, had to increase credit operations and played a crucial role in the set of anti-cyclical policies. The bank received political pressures for a more aggressive credit policy. Some reaction against this orientation cost Banco do Brasil s president his job in April of Credit grew, interest rates were reduced and the bank regained some market share, lost following the merger of Itaú and Unibanco, which formed the biggest private Latin American bank. Table 3 shows the composition of Banco do Brasil s credit portfolio and its real growth rates prior to and during the crisis. 9

10 Table 3. Evolution of the credit portfolio of Banco do Brasil (in constant R$ millions for the third quarter of 2008) Loan Portfolio Individuals Businesses Agribusiness Dez/ Mar/ Jun/ Set/ Dez/ Mar/ Jun/ Set/ Dez/ Mar/ Jun/ Sep/ Dec/ Mar/ Jun/ Sep/ percent growth previous quarter Mar/07 4,36 7,79 5,18 2,74 Jun/07 2,88 6,20 1,58 3,69 Set/07 1,45 3,67 3,94-2,54 Dez/07 3,70 5,14 6,29 3,76 Mar/08 4,52 11,30 2,65 5,95 Jun/08 6,16 6,72 9,24 5,17 Set/08 3,40 2,91 5,79-4,51 Dez/08 9,97 12,59 12,87 4,08 Mar/09 8,29 26,04 5,37 1,57 Jun/09 4,94 12,60 2,11 5,73 Sep/09 13,83 26,02 13,94 1,31 Dec/09 5,19 6,91 6,96-2,52 Mar/10-0,33 1,66 0,28-4,18 Jun/10 4,07 3,56 3,08 5,56 Sep/10 1,96 4,02 1,52 3,02 real credit growth during crisis % Dec08/Jun08 13,70 15,86 19,41-0,61 Mar09/Jun08 23,13 46,03 25,82 0,94 Sep10/Sep08 58,22 135,73 55,32 15,03 Source: Banco do Brasil Data show clearly the strong rise in loans since the crisis worsening. Especially credit to households was granted as an instrument to stimulate demand and the domestic market s GDP confirmed the effects of this policy: household s consumption increased almost 7% in 2010, as will be better discussed below. 10

11 Caixa Econômica Federal (CEF, Federal Savings Bank) is a federal commercial bank with some other very precise attributions and operation fronts in credit for housing. CEF, as well as Banco do Brasil, increased credit to different sectors and remained very active in implementing public policies during the crisis. Brazilian government was preparing an audacious housing program short before the worsening of the crisis. The program (Minha Casa Minha Vida) was officially launched in March The allocated resources are very important and the effective results considerable. The housing program, combined with credit and tax exemptions for the construction sector played an important contribution to GDP growth in the period Since 2010 the main concern of economic policy has been currency appreciation. Numerous measures to tax capital entrance were taken to protect the real against the socalled currency war established by loose monetary policies in the developed countries. The measures were not effective to reverse the tendency, though. As table 2 described above, monetary policy stimuli from reserve requirements were set back gradually. Several cuts in the basic interest rates were made by the central bank between 2009 and mid-2010, a trajectory reverted from April when the Selic departed from its historical low to peak again in July, 2011 as inflation concerns went to the center of the government agenda. Until the end of 2011 it remained a serious worry, but the worsening of the European debt crisis led the Central Bank to begin a new round of monetary easing from August. In sum, after 2010 Brazil managed its economy and, even if growth faltered in 2011 after the artificial results of 2010, was not threatened by recession in any moment. *** 4. Economic performance Brazilian economy responded to the policy stimuli and the recovery was seemly fast, compared to that of industrial countries. GDP shrank only in 2009 but had an impressive performance in The slowdown of 2011 was the result of both a more restrictive economic policy in the face of inflationary pressures caused by the previous expansion and the rise of uncertainties in the world economy. 11

12 Graph 3. GDP Annual Growth Rate (%) 7,5 6,1 4,9 5,1 4,0 1,9 2,3 2,7 0, , Source: IBGE collected in Ipeadata Table 4. Supply and Demand Annual Growth Rates (%) Agriculture Industry Production Services Total Construction Total Commerce Financial Intermediaries Aggregate Demand Consumption Investment GDP ,8 1,3-3,3 0,8-0,5-4,8-0,8-4,6 1, ,3 7,9 6,6 5,0 7,5 3,7 3,8 9,1 5, ,3 2,1 1,8 3,7 3,5 5,3 4,5 3,6 3, ,8 2,2 4,7 4,2 6,0 8,4 5,2 9,8 4, ,8 5,3 4,9 6,1 8,4 15,1 6,1 13,9 6, ,3 4,1 7,9 4,9 6,1 12,6 5,7 13,6 5, ,1-5,6-0,7 2,1-1,0 7,8 4,4-6,7-0, ,3 10,4 11,6 5,5 10,9 10,0 6,9 21,3 7, ,9 1,6 3,6 2,7 3,4 3,9 4,1 4,7 2,7 Source: IBGE A closer look at the indicators of economic performance shows the effects of countercyclical policies adopted during the crisis. In fact, the construction sector growth resumed vigorously, contributing to a strong recovery in investment rates. Household consumption has suffered relatively little from the crisis, as shown by the annual growth rates. Unemployment rates confirm this pattern also. Despite the crisis, formal 12

13 employment kept increasing in Brazil, contributing to consumption growth. Actually, consumption came out of the crisis as a bigger contributor to growth then before the global downturn. This, associated with the high levels of employment and changes in the consuming patterns, privileging services, is one of the main reasons for a lingering inflation in 2010, 2011 and possibly Graph 4. Unemployment rate in metropolitan areas 11,0 10,0 9,0 8,0 7,0 6,0 5,0 4,0 Source: IBGE collected in Ipeadata Another indicator of Brazilian recent economic prosperity is the Central Bank Economic Activity Index. This index embodies the industry trend of several economic variables and is used by the central bank as an antecedent indicator of monthly GDP. Graph 5 depicts an sustainable evolution since 2002 with a robust recovery after the drop in second semester of

14 Graph 5. Central Bank Economic Activity Index Index basis: 2002=100 IBC-Br IBC-Br season adj Source: Central Bank of Brazil - Índice de Atividade Econômica do Banco Central (IBC-Br) The good performance of the Brazilian economy, together with the maintenance of interest rates at a high level by international standards and the loose monetary policy pursed by the developed countries contributed to the continuous inflows of foreign capital, foreign reserves accumulation and, as previously advanced, currency appreciation. Two large sets of consequences arise from recent movements in the Brazilian economy. On the one hand, Brazil is consolidating an international image of strength and soundness, which encourages investment both external and domestic and gives more weight to the Brazilian voice in international economic forums. On the other hand, prosperity translated in strong appreciation of the currency has the side effect of highlighting the low competitiveness of Brazilian products in the world markets. 14

15 Graph 6. Foreign Reserves, US$ Million Source: Central Bank of Brazil Risk assessment by international markets and nominal exchange rate are very closely correlated. Both indicators were at the end of 2011 at similar levels to those they had at the beginning of the crisis, which, in the case of the exchange rate, means more appreciation in real terms. 15

16 Graph 7. Emerging Markets Bond Index and Nominal Exchange Rate, month averages EMBI + Risk Exch rate - R$ / US$ 4,00 3, , ,50 2,00 1, , ,50 0 0,00 Source: JP Morgan and Central Bank of Brazil Regarding foreign trade, the results reflect persistent weaknesses in the economy and are less auspicious. Although they are prerequisites for sustainable economic growth, advances in the Brazilian economy have not led to structural reforms that could give rise to permanent gains in competitiveness. This paper, however, is not suited to discuss a possible process of deindustrialization that may be underway in the Brazilian economy. But the fact is that little has been observed in diversification of exports, still concentrated on products with low technological content, as shown in Table 5. 16

17 Indicators Table 5. External Accounts Indicators Brazil Latin America and Caribbean Real growth in trade Latest Latest Real growth in total trade (g+s,%) Nominal growth in trade Nominal growth in total trade (g+s, %) Nominal growth in total exports (g+s, %) Nominal growth in total imports (g+s, %) Trade Composition (share of goods and services) Agricultural exports share of total exports (g+s, %) Non-agricultural exports share of total exports (g+s, %) Manufactured exports share of total exports (g+s, %) Ores and metals exports share of total exports (g+s, %) Non-agricultural imports share of total imports (g+s, %) Manufactured imports share of total imports (g+s, %) Goods trade integration (% of GDP) Services trade integration (% of GDP) Goods exports (% of GDP) Goods imports (% of GDP) Trade Balances Current account balance (% of GDP) Trade balance (g+s, % of GDP) International reserves (% of imports of goods and services) Shares of World Trade Total trade share of world total trade (g+s, %) Exports share of world exports (g+s, %) Goods exports share of world goods exports (%) Agricultural exports share of world agricultural exports (%) Food exports share of world food exports market (%) Non-agricultural exports share of world non-agricultural exports (%) Manufactured exports share of world manufactured exports (%) Fuels exports share of world fuels exports (%) Ores and metals exports share of world ores and metals exports (%) Growth in Shares of World Trade FDI Growth in trade share of world total trade (g+s, %) Growth in exports share of world exports (g+s, %) Growth in imports share of world imports (g+s, %) FDI inflows (% of GDP) FDI outflows (% of GDP) FDI inflows (% of exports of goods and services) FDI inflows (% of world FDI inflows) Source: World Bank 17

18 External trade has not been the driver of Brazilian economy in the recent period. Total trade dropped in real terms with the crisis. Imports have been increasing with currency appreciation and higher growth rates in recent years. Obviously, Brazil s share of world s trade has increased; the country attracts more foreign direct investment not to mention foreign savings entering Brazilian economy through financial markets. But Brazil still does not detain a share of the world s goods and capital flows sufficient to place it among the largest economies in the world, even being the sixth considering 2011 GDP and taking into account the another plunge of large industrial economies as well as the appreciation of the real. Nevertheless, Brazilian voices have been heard in louder tones recently As for many countries in the world, China became an important trading partner for Brazil at the same time that large traditional partners like the United States and the EU have seen their participation decreasing. In the regional arena, Mercosur has lost its importance in economic relations, despite the speech pro-integration of all its members. 5. Brazil s new position in the world economy The Brazilian government responded to the crisis with a set of strongly expansionary measures. As in most countries, though, the policies were of traditional inspiration. The monetary measures were mainly of liquidity expansion through reduction of reserve requirements combined with direct credit growth by public financial institutions. Fiscal policy was composed of the maintenance of the program of public expenses already in place somehow ambitious, including an industrial policy and a broad action of tax exemptions which was considerably expanded after the worsening of the crisis. However, previous to the crisis, the set of public policies was already expansionary. In 2007, central government created a Growth Acceleration Program (PAC, from its acronym in Portuguese) which provided a huge amount of resources from public budget combined with private funds to invest mainly in infrastructure. In 2009, as the crisis hit its worst, besides tax breaks and credit expansion, the government launched its housing program, boosting not only the construction industry. The following year, a new investment framework is presented, the PAC2 outlining the main directives for the period. Like everywhere, the economy was hit through credit and external trade channels. Countercyclical policies, accordingly, acted to strengthen domestic markets already stimulated by specific policies established before the crisis. The emergence of new 18

19 segments to consumption, a direct result of the sound macroeconomic management and low inflation pattern set by the Real Plan, the wage policies raising real income above inflation, and a subsidiary role of cash transfer programs, armored the Brazilian economy from the global downturn and established a new platform for the country s global standing. Although not indifferent to the world s financial turmoil, the Brazilian banking system passed seemly safe through the crisis. Regulation, concentration and central bank s policies to restore credit flows restrained the impact of the liquidity crunch. The economy, however, is still plagued by a tight monetary policy as a corollary of structural deficiencies and the banking sector, oligopolized, keeps interests at record highs. As public banks work as governmental tools besides the Central Bank, private banks enjoy a wellprotected market where consumers have little choice. International reserves stock permitted the central bank to defend national currency in the foreign exchange markets, preventing a destabilizing too deep depreciation. Later, the currency problem took a very different way as risk tolerance in international markets, alongside the poor prospects in the developed world and the huge interest rate differential flooded the Brazilian market with foreign currency leading to sharp currency appreciation. Having a low savings level, FDI is crucial for the Brazilian development, in such a way that government policies must strike a difficult point to balance measures against speculation and not shun valuable investments. Aditionally, political support was at hand for central government during the whole implementation of the countercyclical policies, allowing swift answers from the Executive (the Central Bank took some time before starting to lash interest rates). An apathetic opposition, on the other hand, lowered accountability, especially regarding government transfers to BNDES and the extension of tax breaks with electoral purposes. Undoubtedly, Brazil has attained a new global standing with the crisis. An active member of the G20, though not a conflictive one, Brazil has good transit with all major players in the international scenario and, if nothing else, that is already something. The growing role played by Brazil is recognized, for instance, in the enlargement of its shares in the Bretton Woods institutions or in the courting of emerging markets by European governments in search for some relief to their debt crisis. One must forget the fragilities still underlying the Brazilian economy only because others are worse still. Structural problems, as pensions, labor markets and tax reforms, low saving and investment level and low foreign trade diversity haunt the country for decades and may undermine the current prosperity. So can an overreliance on the domestic market. Growing used to operate on a parish level, as happened throughout Brazilian history until the 1990s, may prove extremely dangerous when the world comes knocking. 19