Quote from Tom B:
Why would any country want to invest in Brazil? Brazil is a banana republic. ...
A few days ago I read (in an article from Motley Fools, I think, but only copied it without recording the link) the following to answer your question (Selected part of a long article):
{Brazilâs} â
highly professional central bank, which, independent of political pressures, kept real interest rates high in the Brazilâs commodities-crazed bonanza years. That restraint kept the economy from overheating, built a rock-solid cushion of international reserves to be deployed precisely in a crisis like the one we experienced last year, and resulted in a
healthy internal banking system.â
âWhen a country
enjoys twin surpluses (primary fiscal and current account) and is sitting on some $200 {actually it is $232 now as the Central Bank has been buying billions every week to keep the dollar from slidding down against the Real even more} billion of international reserves, the risk of capital flight that could cripple the economy is minimized.
In Brazilâs case, its high level of foreign reserves and a
flexible, floating exchange rate {not like China} were enough to insulate the economy from the global banking freeze and provide the financing to keep exports rolling.â
âThe fact that Brazilâs economy is
only 13% dependent on foreign trade limited the downside effects of the global crisis.
The fiscal surplus and strong banking system allowed for ample fiscal stimuli and credit expansion to take place. ⦠{so} The
economy has added 1 million jobs, {formal ones and twice that infomally - home industries, street sellers, house painters, etc. - a booming economy} which replaced the 800,000 jobs lost during the crisis.â {Also note that
unlike deep in debt US, Brazil is a net creditor nation.}
ââ¦
key short-term rates at 8.75% and inflation right below 4.5%, Brazilâs monetary policy is one of the tightest in the world. But these levels are at record lows for Brazil, which traditionally runs tight monetary policies to prevent its economy from overheating.â {Brazil already knows what US will soon learn that run-away inflation is very destructive.}
âInternational Monetary Fund just published a book entitled âCrisis Averted â What Next?â In it, the IMF highlights the fact that commodity
exporters like Brazil are leading the recovery and will have to exit monetary and fiscal stimuli earlier than the rest of the world.â
âIts September trade surplus was $1.3 billion, down from $3.1 billion the prior month. The strong appreciation of the
Brazilian real, which has rallied some 35% against the U.S. dollar this year, was the main impetus behind this decline.â {This despite the dozens of billions of dollar the central bank took off the market to keep the dollar from declining even more against the real. Note also last week Brazil imposed a 2% tax on hot money of the carry trade both entering and then when leaving. â A self defense measure against the US setting interest rates near zero and flooding the world with newly printed dollars. As I said above Brazil already knows how destructive rampant inflation is and follows a tight money policy.}
âSo, we will continue to go long on Brazil, but since
weâre up 110% on my previous EWZ recommendation, we should lock in some profits for risk management purposes.â
But you feel free to sit the party out on an economy that is growing investor profits as fast or faster than China is, and
already has an economy that is 87% based on its own internal markets and is so self-sufficient in everything a modern economy needs that
it exports minerals, food, energy, etc. to others.
Yes that sounds like a terrible place to invest â you are so smart not to. Cleverly avoiding a "Banana Republic" :eek:
