ECONOMY-BRAZIL: Trade Surplus and Recovery of ‘Real’ Feed Hopes

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Nov 2 2001 (IPS) - Brazil recorded another trade surplus in October, accumulating 1.5 billion dollars so far this year and feeding hopes for an improved trade performance in 2002 and for less pressure on the national currency, the real.

The surplus for the last month was 248 million dollars, a decline from the 535 million dollars in September, but above the scaled-back forecasts that were made in view of the usual rise in imports in the year’s final quarter.

Imports in October reached 4.75 billion dollars, while exports were just over five billion.

The accumulated figures for the last 10 months were 47.9 billion and 49.4 billion, respectively, announced the Ministry of Development, Industry and Commerce this Thursday.

Since September, there has been a turnaround in Brazil’s foreign trade, which points to a surplus for next year, said minister Sergio Amaral even before seeing the final numbers for October.

The reality is that the dramatic depreciation of the real since January – by nearly 30 percent since January – has contributed to the favourable trade balance. The decline of the real, in turn, has been attributed largely to the severe economic crisis in neighbouring Argentina.

Since January 1999, when Brazil adopted a floating currency exchange system, the real has lost more than 50 percent of its value with respect to the dollar.

On another front, the Brazilian Foreign Trade Association, whose membership consists of export companies, has gloomy calculations indicating that the surplus will reverse by approximately one billion dollars by the end of this year.

The favourable trade balance is not due to the rise in exports, but rather to a decline in imports, resulting from the weak real and the deceleration of the economy. The crisis in the air transport industry also had an impact on the trade tallies.

Brazil’s commercial aviation companies, unable to pay their heavy debts because of the reduced number of passengers, are returning some of the aircraft purchased or rented from foreign firms. These returns are entered into the balance sheets as exports.

As such, Brazil’s trade surplus could even double because Varig, the country’s flagship airline, is expected to return as many as 10 large aircraft for a sum calculated at around 1.2 billion dollars.

For next year, some economic authorities and market analysts are predicting that the favourable balance will jump to 5.0 billion dollars. The former economic policy director of Brazil’s Central Bank, Sergio Werlang, is even more optimistic, saying that the surplus could be twice that figure.

His calculations take into account the fact that the Brazilian currency today represents a depreciation that is greater than that suffered in 1992 and 1993, when the country recorded an unprecedented trade surplus of 15 billion dollars.

But a repeat of that performance would be extremely difficult in the current context because Brazil’s market is much more open now.

The improvement in the trade balance, say market observers, contributed to the real’s recovery this week, just when Argentina’s economic situation is taking a nosedive, with its “country risk” index reaching historic levels of more than 2,000 points. (‘Country risk’ is a measure of the potential for international loan default, as perceived by investors.)

The dollar, which last week was worth 2.74 reais, fell this Thursday to 2.67 reais.

The Brazilian currency exchange “separated itself” from the Argentine crisis, say analysts, despite the negative impact of the failed attempt to privatise the Parananese Energy Company, an operation that did not take place Wednesday as planned because there were no interested buyers.

The factors behind the currency’s performance also include the fact that, since the Sep 11 terrorist attacks in the United States, the Central Bank has injected more than 10 million dollars into the financial market in titles with currency exchange protections.

Furthermore, foreign direct investment did not suffer the predicted decline and Brazil received a boost to its cash reserves, with 2.4 billion dollars coming from Poland, which paid off a trade debt accumulated over the past decades.

The government has been getting positive results in its efforts for a primary fiscal surplus, excluding the interest payments on public debt.

The debt itself is worrisome, however, because its expansion puts it at 55.8 percent of Brazil’s gross domestic product (GDP), when the goal is to keep it below 50 percent. The sharp depreciation of the real has contributed to the debt rise.

But the main problem the Brazilian economy faces is its dependence on foreign capital, which makes it more vulnerable to international financial turbulence. As such, achieving positive balances in foreign trade has become a crucial objective.