Monday, 15 December 2008

Posting no Site Voz

Isso aqui eh um posting que coloquei no site Voz (www.voz.org.br) em julho. Acho que nada mudou, e acredito firmemente em que o problema atual do Brasil continua sendo isso -- a repulsao a geracao de riqueza.

(Agradeco a Helena Vieira pela edicao dos meus comentarios em portugues.) Visite o Voz: www.voz.org.br

Earlybird, Dec. 15, 2008

Headlines for Dec. 15, 2008:

U.S. -- Bush Denies Imminent Auto Aid Package: (Reuters) Stock markets and the dollar will feel the pinch of this no-imminent aid package. The fate of the Big 
Three remains undecided and with that, the luck of stock investors that had recouped part of their losses in a ten-day rally that died last Friday.

CHINA -- Manufacturing Grows at Slowest Pace Since 1999: (Bloomberg) If China sneezes, the world is likely to catch a cold. The result will add pressure on the Chinese central bank to cut interest rates again before year-end.

BRAZIL -- Lula is Sure Consumers Will Shrug Off Confidence Crisis, Resume Purchases: (Estado) Morgan Stanley analysts are predicting that Brazil will fall into recession at the start of the year -- if it didn't during the fourth quarter. Lula is moving quite fast to avert more job losses and a paralysis of production across the board. He will hardly succeed.

ECUADOR -- Correa May Formally Skip Bond Payment Today: (Comercio) The aim of President Correa is to force bondholders to accept an Argentina-like restructuring that allows him to recognise just a small fraction of what the country owes to bondholders. As oil plunges and aid from Venezuela fizzles, he will have not so much space to succeed.

ARGENTINA -- Fernandez to Announce 71 Billion Peso Investment Plan: (La Nacion) Argentina is implementing a similar strategy to Brazil's, that is, subsidising consumer credit and investing heavily in infrastructure to ensure growth remains in pace. A Latin revival of Keynes, but obviously, with the political taint included. The recent confiscation of the private pension funds is giving her administration additional gas to keep boosting spending. the problem is, when Argentines realise that their savings were seized to pursue populist goals, will they stay home quiet and happy? 

U.S. -- Madoff Avoided Controls Until Ponzi Scheme Burst: (Bloomberg) This is the next news in the Madoff saga. The former NASD executive avoided almost any control from regulators, casting doubts over the SEC's ability to regulate the U.S. financial markets. In another development, Banco Santander SA -- which had eluded the subprime meltdown thanks to its no-greed policy of not investing in this type of obscure securities, -- unveiled exposure of $3 billion to Madoff's firm. The Spanish lender isn't immune to greed, it seems.

ASIA -- Avian Flu Threat Resurfaces: (WSJ) On one hand, this might be good news for poultry exporters in Brazil, like Sadia and Perdigao. On the other, this only adds more tension in an already challenging moment for the region's economy.

Colombia's Cano Says It's Time to Cut Interest Rates. Do His Colleages at Banrep Agree?

In an interview with Bloomberg, Banco de la Republica director Carlos Gustavo Cano (one of the bank's board members) says that the time has come for the Banrep to slash interest rates. In an unusual interview for any central banker, Cano told Bloomberg reporter Helen Murphy that the reduction is the bank's next step and, moreover, the decision has already been negotiated by the board. But, the question is, is now the time to do it?

There's no doubt that the Colombian economy is probably the one that will suffer the most with the U.S. recession, and to add insult to injury, the ongoing deceleration in Venezuela will only make matters worse. Alianza Valores expects growth to slow down to 2.4% in 2009 from an expected 3.4% this year and 7.7% in 2007. Nevertheless, inflation remains quite high and the currency has shed about one-third of its value against the dollar since August. Inflation is now running close to 8% -- twice the pace of the bank's goal for this and next year. 

Morgan Stanley analysts are betting on a monetary easing of about 200 basis points next year, bringing the benchmark repo rate to about 8%. But some of the problems may not necessarily be on the price front. If the bank is moving towards cutting interest rates is because they have enough evidence that the imbalances in the current account will ease at some point. The question is, will imports decelerate as violently and quickly as exports to the U.S. and Venezuela will do? It seems hard to tell.   

And, what about the fiscal problem? The government has lagged behind in terms of structural reforms to streamline the size of the state and spending has been growing more than GDP growth in real terms. I have little doubt that the remaining Banrep directors are taking into account this issue, so the debate for a rate cut promises to be intense.