“Brazil will not go bust”

While analysts are debating when and how hard the crisis will hit Brazil, journalist and business commentator Carlos Alberto Sardenberg is confident that Brazil will pull through without greater difficulties.

The renowned journalist and news anchor of CBN, Globonews and TV Globo talked to members of the NBCC and the Swedish Brazilian chamber of commerce during a seminar on September 20th.

Although Brazil is facing several challenges, Carlos Alberto Sardenberg still considers Brazil the place to be and the place to look for future business opportunities.

“Brazil is being affected by the international crisis, but we will not go bust. The economy will grow less, there will be more inflation and our debt might increase, but this is something the Brazilian economy can handle, and still keep growing”, said Mr. Sardenberg, who is also a columnist for the newspapers O Estado de São Paulo and O Globo, and has 37 years of experience in journalism.

 

The China effect

During the seminar, Sardenberg outlined the development of the Brazilian economy the last decades.

“Several factors explain the Brazilian growth – a new macro-economic stability, global growth and what I call the China effect on Brazilian economy. In 2002, Brazil exported goods for 60, 4 billion US dollars and in 2008, exports had increased to 196 billion US dollars.”

In the same period, the public foreign debt decreased from 138, 6 billion US dollars in 2003 to 82, 5 billion in 2008, and the country’s reserves grew from 15, 9 billion US dollars in 2003 to 206, 8 billion five years later.

“Today the external debt can easily be financed and is no longer a problem. The government has become an international creditor, and other emerging economies are on the same path, gathering reserves.”

The Real plan

Mr. Sardenberg underlined the importance of the Real plan of 1994, followed by several reforms that increased the economic stability.

A new inflation target regime, the law of fiscal responsibility and primary surplus, a floating exchange rate, federalization of the public debt, privatizations and social cash transfer programs like the “Bolsa familia”, were among the most important structural changes pointed out by Mr. Sardenberg.

“With stability, we see a return of credit to Brazil and with credit follows investments and increased consumption. With economic stability Brazil is an important economy and a big market that offers great opportunities.”

No bubble

For the experienced journalist a crisis hitting the Brazilian bank system is very unlikely.

“What is happening in Brazil is not a bubble. Credit is growing fast, but controlled and at a sustainable level, and our bank system is very conservative and very safe”, says Carlos Alberto Sardenberg.

The expected growth in GDP this year is of 3.52 per cent and the expected inflation is of 6.46 per cent, although the official inflation target is 4.5 per cent.

“It seems that president Dilma has decided to tolerate a higher inflation to protect the economic growth. The question is why the Brazilian economy isn’t growing more? In comparison, the average growth of other emerging countries is 6 per cent, asked Mr. Sardenberg.

New reforms

A lack of investments in infrastructure, a poor educational system and a business environment with regulations and a very high tax burden are the most severe problems Brazil is facing, according to Mr. Sardenberg. Brazil also has higher public pension expenditure than other emerging economies.

“The tax burden in Brazil is going up while the public investments are going down. We have big infrastructural problems. This year, the federal revenues are growing 20 per cent, but the money is used for salaries, pensions and government. Corruption takes its share.”

However, Carlos Sardenberg doesn’t think that the Dilma government will do what is needed to take the country to the next level.

“We need to reduce the size of the government, but I don’t think Dilma is going to do anything to pass any real structural reforms.”

 

A chance to make it right

Mr. Sardenberg also talked about the pre-salt discoveries along the Brazilian coast and suggests that Brazilian authorities look to Norway.

“The pre-salt oil might be seen as proof that God is Brazilian, and the discoveries are certainly important, but we need to know how to explore and how to deal with the profit. The Norway experience is a very important lesson on how to deal with the oil and with newfound wealth. I think Norway should serve as an example for us.”

Carlos Alberto Sardenberg recommends creating a sovereign fund and preserving the money for pensions and investments in infrastructure.

“We need to be very conservative in spending the money.”

By Runa Tierno, NBCC journalist