Brazil's Economy Showing Resilience, Report Says
By SIMON ROMERO
SAO PAULO, Brazil -- The Brazilian economy defied
pessimistic forecasts of stagnation in the first
quarter
and actually registered some growth, the government
said Thursday in a report that showed Brazil's
surprising resilience to the effects of the currency
crisis that erupted in January.
The gross domestic product, the broadest measure of
economic performance, grew by 1 percent in the first
three months of the year compared with the last quarter
of 1998. Agricultural production rose 18 percent,
leading the expansion.
Brazil is the world's largest coffee
producer, and the second-largest
producer of soybeans after the United
States. The weaker currency may
have even contributed to the
economy's growth by encouraging
farmers to increase output of these
and other products since their prices
became more competitive abroad.
"There was an immediate reaction
throughout the entire chain of our
production following the devaluation,"
said Nathan Herszkowicz, president
of Brazil's coffee industry union.
According to the organization, coffee
exports more than doubled in the first
quarter of 1999 compared with the
period a year earlier.
Although higher agricultural output
contrasted with weak industrial
production, the government figures
released Thursday suggest that
Brazil's economy is recovering more
quickly than thought.
While some analysts earlier this year
forecast the economy to shrink as much as 6 percent,
most economists are now predicting a contraction of
only 1 percent to 2 percent. Optimism has been stoked
by six interest-rate cuts over the last seven weeks. On
Wednesday, the central bank reduced its main lending
rate to 27 percent from 29.5 percent, the lowest level
in nine months.
"Interest rates coming down, coupled with controlled
inflation, have had a tremendous impact," said Winston
Fritsch, president of the Brazilian unit of the
investment bank Dresdner Kleinwort Benson. Progress
made by the government in reducing the budget deficit
is likely to allow the central bank to continue
lowering rates to below 20 percent by the end of this
year, Fritsch added.
Brazilian stocks rallied on the growth figures, with
the benchmark Bovespa index here rising 2.56 percent.
Increasing foreign investment in Brazilian equities
together with greater optimism among domestic investors
have pushed the index up 83 percent in local-currency
terms and 34 percent in dollar terms so far this year.
The better-than-expected growth figures and buoyant
stock market contrast sharply with other indicators
that show an economy struggling with its worst crisis
since a stabilization program was carried out in 1994.
The plunge in January in the value of the currency
deeply hurt Brazil's financial credibility and
borrowing power abroad, which reverberated through the
economy with slumping sales, bankruptcies and layoffs.
Manufacturers and construction companies were the
hardest hit.
An example of the economy's strains was seen this week
when 50,000 unemployed workers lined up outside
municipal buildings to compete for 10,000 openings for
street cleaning jobs in the city of Sao Paulo. The
salary for the temporary, six-month work is 136 reais a
month, or $82, Brazil's official minimum wage.
Unemployment here in Sao Paulo, the country's
wealthiest city, is at a record level of nearly 20
percent.
Brazilian companies have started to shift toward
increasing their exports, partly because domestic
demand has remained stagnant. A large food processor,
Perdigao SA, exported 18 percent more in the first
quarter after the devaluation in January. "In dollar
terms, we have the cheapest chickens in the world right
now," said Wang Wei Chang, chief financial officer of
Perdigao.
Still, the opportunities for companies such as Perdigao
to fuel a stronger recovery are limited since domestic
borrowing rates remain punitively high and foreign
credit markets are still largely shunning Brazilian
borrowers. With deeper cuts in interest rates largely
dependent on the government's success in narrowing the
budget deficit, companies are anxiously awaiting fresh
evidence of spending cuts from the capital, Brasilia.
"Now is not the time to relax, not even a little," Wang
of Perdigao said. "We need to see the government
deliver."
Copyright 1999 The New York Times Company |
