Brazilians Relatively Optimistic About Economy

By Joshua Partlow
(c) 2009, The Washington Post

RIO DE JANEIRO — In the final three months of last year, the once-robust Brazilian economy contracted 3.6 percent over the previous quarter, on par with some of the largest declines in emerging-market countries around the world. Unemployment has risen. And the government launched a program to build 1 million houses to jump-start the economy.

But despite the ongoing hardship, Brazilian leaders and economists are relatively optimistic about the region's largest economy. Brazil, they point out, has stable banks, high levels of reserves and sturdy domestic demand for products that keeps many businesses humming along.

"Certainly Brazil, which entered the crisis last, will be the first to come out of it, and it will come out of this crisis stronger than before," Brazilian President Luiz Inacio Lula da Silva told regional business and political leaders this week in Rio de Janeiro. "For this reason, I have advised the businessmen: Don't stop your projects of investment."

The leaders were gathered for the World Economic Forum on Latin America, a two-day meeting that provided a chance to discuss the economic crisis ahead of the Summit of the Americas that President Obama will attend in Trinidad and Tobago this weekend.

Economists predict that Brazil will have roughly zero economic growth in 2009 and that Mexico's economy will shrink. Those two countries — the largest economies in Latin America — as well as the smaller ones have suffered from dropping prices of such commodities as oil, soy and copper, as well as reduced investment and weakened currencies. As in other regions, exports have plunged and credit has become difficult to obtain. But economists say the financial sector problems that have hurt the United States and European countries are less of a concern here.

"Latin America is not Eastern Europe. It is not dropping down into a financial crisis, but indeed is facing one in the real economy," said Pamela Cox, vice president for Latin America and the Caribbean at the World Bank.

Members of Brazil's banking sector said they are better prepared for today's global economic problems because of reforms put in place after a crisis in the mid-1990s, including the closing of poorly performing state banks.

"There are no off-balance-sheet exposures in Brazil, there are no special investment vehicles — they are not allowed. And finally, regulators have complete access," said Pedro Moreira Salles, chairman of Banco Itau Unibanco.

Some recent indicators, such as improving retail sales, offer glimmers of hope for the Brazilian economy, but many are still skeptical that the end of the crisis is near.

"We have to be honest and say that in this year we will probably face a recession, and a recession ... for the region as a whole," said Felipe Larrain Bascunan, a professor of economics at the Catholic University of Chile. "It seems to me we cannot say we have already passed the worst of it."

Among those suffering most are exporters, who are facing weakened demand and a lack of credit.

"If you look at the figures, how can you say that it's not being hit? It's being hit really hard," said Edmar Bacha, a Brazilian economist. But "we do not have the problem of over-indebtedness of households or firms that you have in the U.S. or Europe. This is a big plus for us."