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To: Johnny Canuck who wrote (45112)	11/4/2008 8:49:48 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 71356

International Credit Crisis Strains Brazil Oxford Analytica 11.04.08, 6:00 AM ET This article is part of Oxford Analytica's Daily Brief Service. Click here for information about how to subscribe. Strategic Analysis Provided by Oxford Analytica ASEAN And China Talk About Free Trade Financial Crises Restore IMF's Reputation U.S. Capitalism Faces Change Executive Compensation Faces Scrutiny Ukraine Seeks Help From IMF In September, Brazilian President Luiz Inacio Lula da Silva referred to the global financial crisis as "President Bush's problem." However, since then, contagion from the United States has reached Brazil, dramatically reducing access to bank lending and capital markets. This in turn has threatened to delay or cancel billion-dollar projects ranging from roads to ports to energy production. The restriction of capital may be temporary. However, the effects of the U.S. economic slowdown, the weakening of the Brazilian real and a sharp fall in commodity prices are affecting Brazil just as it begins to implement billions of dollars of public and private sector investment in infrastructure. Slower economic growth in Brazil is also likely to mean lower tax revenue collection, signifying fewer funds for public works projects. First casualties. While most economists are cautiously optimistic that Brazil will be able to withstand the U.S. slowdown and the short-term volatility of financial markets, some projects have already been canceled or put off. --Brazilian billionaire Eike Batista has axed his $1.9 billion port project in Peruibe, Sao Paulo. Batista's LLX Logistica had planned to develop a port with the capacity to handle containers, iron ore, agricultural products and liquids and help Brazil modernize its aging ports network. LLX aimed to issue new shares to raise capital for the project. --The Brazilian government has postponed the auction to build a $3.5 billion high-tension power line from the Amazon to the edge of Sao Paulo. --Two wood and pulp companies, VCP and Aracruz, have frozen plans for new plants and port terminals. --Energy analysts say state-controlled oil company Petrobras will find it more difficult than initially anticipated to raise enough money in the immediate future to develop its new deep sea oil reserves, which could cost up to $500 billion over the next 30 years. Immediate impact in Brazil and beyond. Although Brazilian politicians have been slow to grasp the extent of credit contagion, Brazilian companies felt the impact quickly. The country has 38 companies quoted on Wall Street, the largest number of any Latin American nation. In addition, the real lost 30% of its value between an August high and mid-October, although it regained some ground late last month as investor confidence in emerging market assets firmed somewhat. Across the region, healthy economic growth over the past five years has increased the need for infrastructure. At present, port projects in Mexico and investment in Chilean steel mills are just two areas where investment is on hold until financial market volatility settles down and companies and governments have more of an idea of the economic outlook for 2009. While the global financial crisis will be felt across Brazil, the larger infrastructure projects are the first to suffer, and the government will be unable to prevent some projects being canceled. This will translate into slower economic growth for 2009, to around 3.0% from 4.5% in 2008. Brazilian banks have healthy reserves and are well placed to help infrastructure companies extend debt maturities, albeit at high premiums. However, Brazil's plans to bring its infrastructure up to developed-country status will be delayed at least until 2010.