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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Moominoid who wrote (11965)12/19/2001 8:48:18 AM
From: elmatador  Read Replies (1) of 74559
 
Indeed a good move OZ reaction to the Asian crisis. In the case of "devaluation makes imports more expensive - this isn't good for producers that need to import raw materials and capital equipment" it supports my view that the agricultural sector benefits form a low currency vis a vis the industrial sector that imports raw material and parts and pay royalties.

In the second case of "diverts consumers from buying imports to buying local product" increase consumption of local products to the detriment of the imported stuff.

In our case of our Banana Republic of Brazil things got a bit more complicated: Foreign telecom operators stopped investing since they receive revenues in (devaluated) local currency and invest in dollars. The same can be said for the energy sector.
Both sectors, account for a lot of our Foreign Direct Investment (FDI). Less FDI from these sectors, means less economic activity.

Note that while this, above, is happening, our soy beans an orange juice exporters are getting much more local currency for the dollar they've earned. But they do not channel those dollars right into the economy, so they can't compensate for the investments from the service and industrial sectors that cut down.

To compound this effect the Central Bank jacked up interest rates to 19%, as an anti-inflation measure, thus strangling the economy to a halt.

So no economic growth and the only beneficiary were the agribusiness.
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