COMMODITIES-BRAZIL: Oil Prices Shatter Trade Surplus Dream

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Sep 22 2000 (IPS) - Rising oil prices on the international market are aggravating Brazil’s already difficult go at achieving a trade balance as it records a deficit this month, marked by a sharp increase in imports.

The 267 million-dollar deficit in the first half of September interrupted a seven-month period in which the country accumulated 1.13 billion dollars in its favour, though the surplus levels have been on the decline since June.

In addition, a full one-third of the surplus is on paper only. It reflects four aircraft returned by VASP airline, which is suffering a financial crisis and is unable to pay its suppliers. That transaction was registered as an export.

The petroleum situation is a relatively minor part of the problem. High prices are only finishing off any remaining illusions here that the country would achieve a healthy foreign trade surplus as a result of the devaluation of the national currency, the ‘real’, in January 1999.

Brazil wrapped up last year with a 1.2 billion-dollar deficit, contradicting optimistic government forecasts moulded by an agreement signed with the International Monetary Fund (IMF).

Reducing the trade deficit – with reached 6.59 billion dollars in 1998 – was crucial for mitigating the nation’s vulnerability to the effects of the international financial turbulence that led to the currency devaluation.

This year began with a government goal for a surplus of 5.0 billion dollars, which was later scaled back to 2.8 billion and then to ever-lower figures. This week, Alcides Tapias, Minister of Development, Industry and Trade, said he had given up on any predictions.

Market experts had indicated it would be extremely difficult to achieve a trade surplus of one billion dollars this year, and September’s figures have only deepened their pessimism.

But the frustration arising from failed trade objectives did not create serious problems in Brazil’s foreign accounts because the problem was more than compensated by the strong influx of direct investments, which surpassed 30 billion dollars last year, and are expected to at least match that total for this year.

Brazil must import fossil fuels to complement its internal production, which supplies enough for approximately 70 percent of national consumption. From January to August of this year, these imports cost the country 1.74 billion dollars, 60 percent more than last year.

But it is raw materials and other industrial inputs that drive up import levels. In August alone, the bill reached 2.72 billion dollars, more than half of that acquired from foreign markets, 15.7 percent more than the same month last year.

Celso Furtado, “father” of Brazil’s economic policy, had emphasised this would be a problem, having predicted the failure of the currency devaluation in generating any impressive trade totals.

Exporting industrial goods produced under the new internationally integrated systems demands higher imports of raw materials, parts and technology. This stands in the way of duplicating the surpluses that resulted from currency devaluations in the past, Furtado pointed out.

This type of measure worked for Brazil on other occasions because the nation’s exports were largely raw materials and the internal market was strongly protected, but these conditions changed in the 1990s.

Criticism of Brazil’s supposed inability to boost its exports are groundless, because the country has sold 17.5 percent more overseas this year than in 1999, stressed Roberto Giannetti da Fonseca, secretary of the inter-ministerial Chamber of Foreign Trade.

But imports also grew 12 percent, and the major buyers were the leading exporting companies, according to the privately run Foreign Trade Studies Centre.

Embrae, an aeronautics firm whose successful sales last year turned it into Brazil’s leading exporter, sold 1.4 billion dollars overseas in the first seven months of this year. To do so, however, the company had to import 760 million dollars in inputs.

The telecommunications equipment industry, another sector with rapid export growth, is an even better example of this dynamic. Motorola exported 232 million dollars in goods from January to July, a nearly four-fold increase over 1999, but the company’s imports totalled 477 million dollars.

Other negative factors continue to pile up, such as low prices for agricultural products, the only sector in which Brazil normally runs a strong surplus.

By July, agricultural exports totalled 7.9 billion dollars, four percent less than the same period in 1999. In addition, due to the droughts and cold temperatures that reduced harvests, Brazil will have to import wheat and maize this year, further hindering hopes for a favourable trade balance.