TRADE-BRAZIL: Devaluation Finally Results in Surplus, Says Gov’t

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Sep 28 2001 (IPS) - Brazil’s trade balance has finally responded to the dramatic depreciation of the national currency, the real, says the government, which predicts a five-billion- dollar surplus for 2002.

However, most analysts seem more pessimisti than Development, Industry and Foreign Trade Minister Sergio Amaral, who announced the forecast. They point out that the stagnation of the world economy will make it difficult to sustain an increase in Brazilian exports.

Roberto Iglesias, economist for the private Centre for Foreign Trade Studies Foundation (FUNCEX), calculates a trade surplus of three billion dollars for 2002, which is a sum that is “still very encouraging,” the expert said in a conversation with IPS.

From January to last week, Brazil had accumulated a favourable balance of 1.25 billion dollars, but Iglesias calculates that the surplus would fall to 600 million by the end of the year because this South American country’s imports tend to rise in the year’s final quarter, offsetting export income.

The figure does not include the return of 13 aircraft leased by Brazil’s flagship airline Varig that had been recorded as exports. The surplus would reach two billion dollars with that transaction, attributed by the company to the airline crisis, which only intensified following the Sep 11 terrorist attacks in the United States.

This month’s surprising results indicate a turnabout in Brazil’s trade performance, which had remained mostly negative throughout the last couple years, despite the sharp depreciation of the real beginning in Jan 1999. The surplus recorded in the first three weeks of September was 594 million dollars.

But this favourable outcome is due largely to the decline in imports, resulting from the deceleration of the national economy, and to the exceptional sales of aircraft by the aeronautics firm Embraer, which since last year has stood out as the country’s largest source of export revenue.

The depreciation of the Brazilian currency contributed towards containing imports, while stimulating exports of agricultural commodities, says Iglesias. This trend is expected to continue through next year, he adds.

There will not be a more substantial rise in the surplus because industrial exports are suffering the effects of waning international demand, “which was previous to the attacks, but has worsened since,” explained the economist for the Rio de Janeiro- based FUNCEX, an institution backed by Brazil’s major export companies.

The Brazilian real, which had already lost 25 percent of its value with respect to the dollar in the Jan-Aug period this year, plummeted even further after the Sep 11 attacks in New York and Washington, forcing the Central Bank to intervene in the exchange markets several times in attempts to contain the damage.

The government decided, meanwhile, to adopt new measures to stimulate exports, with an eye to reducing Brazil’s dependence on foreign capital because it tends to amplify the impacts of international economic turbulence on this South American giant.

The problem is now being handled as an emergency situation, prompting the Fernando Henrique Cardoso administration to create a Chamber of Foreign Trade Management, an inter-ministerial body with the authority to impose measures for ensuring a trade surplus increase.

Expanding the availability of credits, reducing tax burdens, streamlining bureaucracy, fomenting added value for Brazilian products and promoting exports are among the Chamber’s top objectives.

The elimination of obstacles that drive up export costs is also indispensable, according to the Brazilian Association of Foreign Trade (AEB).

A study that the AEB presented to the government outlines more than 100 taxes, payments and requirements of the national, state and municipal governments that complicate exports.

Many of these are fixed costs, which make the burden disproportionately high for smaller companies. In sales of low- priced items, the national taxes, on top of transport costs, can reach 40 percent of the export value, says Mauro Laviola, an AEB consultant.

A large corporation may see such costs amount to just 16 percent, benefiting from large-scale production, but it is still a large bite into profits – and this seriously affects the competitiveness of Brazilian products, Laviola stressed.

High financing costs in Brazil represent another obstacle. The government has expanded the availability of credit under better conditions, but exporters still face difficulties in this area in the coming months due to uncertainty that has been further aggravated by the Sep 11 attacks, says FUNCEX’s Iglesias.

In any case, the country’s large agricultural surpluses and the currency depreciation ensure a favourable trade balance, he maintains.

Economists see a healthy trade surplus as key for improving the investor confidence, which is a decisive factor in reactivating Brazil’s economic growth.