Brazilian Central Bank President: Brazilian Indicators Back to Pre-Crisis Levels

In an interview today, Brazilian Central Bank President Henrique Meirelles said that some Brazilian macroeconomic indicators have returned to levels prior to financial crisis. He noted that Brazilian international reserves were $205 billion in August 2008, at the peak of the turmoil. Now, on June 1 2009, reserves were U.S. $205.4 billion. "In summary, Brazil is one of the few countries whoe volume of reserves is back to those at start of the crisis," he said during a public hearing on the joint committee of the House on the crisis.

He also compared the level of net public sector debt relative to Gross Domestic Product (GDP). According to him, the rate was 40.5% when the crisis was worsening, and now is at 38.4%. "The crisis here reached smaller proportions compared with other countries," he said, adding that the regulation of financial institutions was essential to minimize the effects of turbulence.

During the hearing, Meirelles cited steps taken by the CB against the crisis, as sales of U.S. dollars in the market and the reduction of compulsory deposits to encourage the credit, among others. "Some of these measures are considered as a model in many global forums and are being studied," he emphasized. According to the president of CB, these measures were possible because the institution had sufficient reserves to operate in the foreign exchange market.

Meirelles said that Brazil is in a very different situation than the United States and therefore it is not implementing the same level of monetary and fiscal policy to tackle the crisis there. He explained that the crisis started in the United States and its impact on the soundness of the financial system and the North American economic activity required a profound reduction of interest rates in the U.S. and an aggressive fiscal policy that is significantly increasing its debt. Although necessary, these actions are generating concerns about the future. These concerns relate to a possible increase in inflation in terms of monetary and fiscal expansion in progress.

In the case of Brazil, according to Meirelles, is a positive fact that the economy has not demanded such aggressive actions as those performed in the United States. "Brazil is at an advantage for not having to do this, so Brazil is now well-seen by investors and will leave the crisis very strong".

What differentiates the country in this crisis in relation to earlier is that this time consumption and investment were high at the time the crisis started. Thus, despite the impact of international credit contraction in the country, Brazil was in a better position to tackle the crisis.

Meirelles also noted that the growth of investment has enabled the country entered the crisis with the modern industrial park, ready to grow. He also said that another positive difference is that Brazilian inflation is under control.

Meirelles said that the total losses generated by the international financial crisis are around U.S. $ 4.1 trillion. Of this total, he said, $2.7 trillion losses were registered in the United States, U.S. $1.2 trillion in Europe and U.S. $0.1 trillion in Japan based on these numbers, Meirelles said the current crisis is greater than those previously recorded in recent history and said that the world's GDP should fall by 1.3% this year with world trade and a decline of 11%. This framework tends to generate an impact on Brazilian exports.

The president of CB also noted that markets have recently shown a perception that the worst of the crisis has passed. He said he hopes that this is confirmed, but stressed that it is premature to reach conclusions as the U.S. economy apparently will have a slow recovery.