Sunday, February 08, 2009

Only Fear Brazil has is Fear Itself; Rest of Latin America Struggles

Financial Times
BBC News

According to Francisco Valim, a leading credit-risk analyst in Brazil, says that the biggest problem facing the country is the “fear of recession.” This statement was made amidst new data that industrial output is down 14.5% and that Brazil lost about 200,000 jobs in December. Other data, on the other hand, is more positive. For instance, in comparison to international levels, Brazil’s economy is fueled by a small amount of credit and the global credit crunch hasn’t had much effect on the country. Additionally, although falling commodity prices have adversely effected other emerging and developing economies, Brazil has a robust domestic market for commodities that has helped insulate it from the falling prices.

In addition to Mr. Valim, many experts attribute the slightly faltering economic results to banks and businesses restricting activities out of a fear of global recession. Some place the blame on banks for slowing down how much they lend out, while others say that banks are willing to lend, but that demand for loans is down because companies are relying on their own cash reserves for financing. Regardless of the source of the recent economic set-backs, many Brazilians believe that any economic difficulties will be short-lived. This belief is echoed by president Luiz InĂ¡cio Lula da Silva who has a record level of approval at 84%.

The rest of Latin America wishes it were as lucky as Brazil, and only had fear to blame on their economic situations. According to the United Nations Development Program (UNDP), Latin America could lose up to 2.4 million jobs due to the global economic crisis. Rebeca Grynspan of the UNDP warns that smaller countries are particularly vulnerable right now. Miss Grynspan warns that Latin American countries must find a way to inject cash into their economies or face a potential 10%-15% raise in poverty levels. Oil-exporting countries, such as Venezuela and Ecuador, may find it difficult to fund important social programs as they deal with dropping oil prices.

1) Do you think a “fear of recession” is the real cause of Brazil shedding 200,000 jobs? Such a fear could amount for a portion of such loses, but surely there are other reasons for the hike in unemployment.
2) How will smaller countries find the necessary funds to inject money into their economies?

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