Why Brazil is weathering the global financial crisis this time
| Rio de Janeiro, Brazil
Lolita Morinigo has lived through sharp ups and downs in the Brazilian economy over the past 24 years as the owner of two clothing stores here.
It's a downtime now, with consumer spending dropping and Brazil plunging headlong into a recession. Business at Ms. Morinigo's two Flamengo neighborhood stores has fallen by 40 percent from a year ago.
On a recent Saturday, Morinigo sat on a couch in her women's clothing store, and her four salesclerks stood idle. They had no customers.
"But I don't think the crisis will last long," Morinigo said. "We've got a new collection coming out next month. The situation will improve."
While analysts expect a tough 2009 for Brazil, no one expects the global crisis to unleash hyperinflation, prompt huge layoffs, or cause an economic depression this time in the world's ninth-largest economy.
With inflation tamed, the Central Bank brimming with dollars, and businesses increasingly competitive on a global stage, Brazilian officials expect to weather 2009 and begin growing again in 2010. The government is spending billions of dollars to create construction jobs and has reduced sales taxes to stimulate sales of new vehicles. Brazil is benefiting today from putting its economic house in order during the past 15 years.
"I say every day Brazil was the last country to be affected by the crisis," Brazilian President Luiz Inácio Lula da Silva told reporters after meeting with President Obama on March 14. "But we also have the possibility to be one of the first countries to resolve and get out of the crisis. We don't face any problem in our financial system."
Indeed, Brazil's problems stem from international factors – a lack of credit and collapsing demand abroad for exports of its meat, iron ore, and airplanes – not from domestic financial shenanigans or government mismanagement, as has happened in the past.
"This is a crisis that was caused by white people with blue eyes," Mr. Lula said in late March. "And before the crisis, they looked as if they knew everything about economics."
Autoworkers, construction workers, and others in Brazil – about 750,000 in all since November – now find themselves jobless. The stock market has plummeted nearly 50 percent since peaking in August. The country's currency, the real, has lost about a third of its value versus the dollar, making imports that much more expensive for retailers.
Among the newly unemployed is Ronaldo Joao Rocha.
He was giving his name and other vital details recently to a job assistance worker sitting at a computer terminal in a high-ceilinged room where the unemployed apply for work at long rows of white tables.
In September, about 800 people a day came to the office in a rundown neighborhood in Sao Paulo to register their names in a job bank. It now attracts 1,500 a day, said Izilda Leal Borges, who helps manage the office.
In January, the union-run office had 13,500 job vacancies. Now: 9,000.
"The biggest problem we face is that only 20 percent of those who come here have the minimum qualifications to get one of our jobs," Mr. Leal Borges said. The minimums include a high school degree and an ability to do basic work on a computer.
The ax for Mr. Rocha and 45 other workers at a trucking company came three months ago.
Since then, while job hunting, Rocha uses the bus or the subway instead of driving, and he didn't buy a $500 computer for his daughter as planned. Still, he's spent half of the $900 in savings he'd accumulated.
"It's a drag," said Rocha. "I have to provide for my family. But you can't lose hope. I think I'll find another job in two months."
Economic analysts would probably not be as optimistic in the short term.
Forecasters revised downward their projections for 2009 in mid-March, after the government reported that the economy shrank by 3.6 percent in the final quarter of 2008.
Guilherme Nobrega, the chief economist for Sao Paulo-based Itau Securities, now expects Brazil's economy to grow by 0.6 percent in 2009, down from his last estimate of 1.5 percent.
"Manufacturing companies are getting hit hardest because they depend so much on credit," Mr. Nobrega said. "The economy is unraveling."
Chemical, timber, mining companies – to cite three major exporters – are laying off workers as their overseas orders drop.
Loans have dried up for farmers, and agriculture production is down by about 5 percent, said Mauro Lopes, a researcher at the Getulio Vargas Foundation, a Rio-based research organization and university.
Imports have dropped across the board.
"Six months ago, I sold 240 boxes of [imported] tennis ball canisters and 30 tennis rackets," Luiz Salemi, owner of a sporting goods store in downtown Sao Paulo, said on a recent afternoon, as he waited for customers. "In February, I sold 48 boxes of tennis balls and 10 rackets. It costs 40 percent more to sell imported goods" because of the real's decline versus the dollar.
Brazil's car industry also has taken a major hit.
Sales of new vehicles plunged to 178,000 in November from 269,000 in September, said Jackson Schneider, president of the carmakers' Sao Paulo-based trade association.
General Motors' Brazil branch responded by laying off 1,600 temporary workers. The division is considered among the stronger parts of GM, which faces a possible bankruptcy.
Virtually all of the carmakers furloughed employees in December.
Some 2,000 workers at auto parts companies have lost their jobs while another 16,800 have suffered an average 13 percent wage cut, said Miguel Torres, who heads the parts-workers union in the state of Sao Paulo.
The outlook for the automakers has brightened, however, at least in the short term after President Lula in January exempted most new cars from the 7 percent sales tax for three months. The exemption was extended this week for another three months.
Sales rose in February to 199,000 – up 22,000 from November but still 70,000 below September.
"When it comes to sales, I'm nervous," Rogelio Golfarb, the director of corporate affairs and communication for Ford in Brazil, said at the company's sprawling industrial complex on the outskirts of São Paulo. "The buyer has to be sure he'll be able to pay."
Ford has reduced production, which has been felt by assembly-line workers such as Eneias Camargo.
Standing next to half-built cars minutes after his shift ended, Mr. Camargo said the loss of overtime income means he can't trade in his 2006 Ford for a new model.
"I've also stopped studying English," said Camargo, who's worked for 20 years at Ford.
Sergio Nobre, the president of the Metalurgical Workers Union, said that Lula promised him in January that he would continue government programs to benefit the carmakers, as long as they agreed to not lay off any more workers.
"The government's role is decisive in leading to a recovery of the auto industry," said Mr. Nobre, who sat in the same dingy office in suburban Sao Paulo that Lula used to occupy. Lula, a onetime autoworker who became the union's leader before creating the national Workers Party, held the job 30 years ago.
The government's help is cheering several industries.
Antonio de Sousa, president of the Sao Paulo construction-workers union, said he expects the government spending spree on infrastructure projects to create 150,000 jobs in 2009.
Similarly, Petrobras, the energy giant partly owned by the government, is moving ahead with plans to invest billions of dollars to find and produce more oil.
Atento, which owns call centers throughout Brazil, is hiring workers. So is Pao de Acucar, a ubiquitous coffee shop.
In Rio, on a warm morning where most shoppers wore shorts and T-shirts, Antonio Abrahao lamented that sales have declined by 15 percent in his neighborhood market.
"I expect a difficult year," said Mr. Abrahao, taking a break from ringing up sales. "But now we have savings. Our economy is more solid. We're not in crisis this time."
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