Brazil’s president gives bad shopping advice


The government of Brazil is about to begin a media campaign encouraging its people to avoid recession by spending more money. Let’s remember that the leaders of the US, the UK and Canada gave their citizens the same advice after the terror attacks on September 11, contributing to the bubble that resulted in the worst financial debacle since the Great Depression.

Brazilians already believe they are more insulated from the global crisis than other people. More than half the population thinks the country will be less affected by the world’s economic woes than their Latin American neighbours, according to a recent survey by McCann Erickson, a global advertising agency network.

Fewer than 30 percent of people in Mexico and Chile believe they will be hurt less than others.

If President Luiz Inacio Lula da Silva’s irresponsible campaign to stoke consumerism resonates among Brazilians – adding to their unrealistic optimism and their burden of paying sky-high interest rates – the consequences could be disastrous.

When Brazil begins to show what has already been anticipated by global financial markets, unemployment will rise and personal income will fall.

Millions of families who happily follow Lula’s advice, spending generously on a very merry Christmas this year, may be bankrupt by the same time next year.

The government’s “keep shopping” message reveals Lula’s desire to achieve the highest possible economic growth rate, which he believes would help his party to retain power in 2010. It also shows his failure to comprehend the depth and extent of the current financial meltdown.

“Without any fear of being wrong, Brazil is today the most prepared country to face this crisis,” Lula said last month.

His self-confidence masks his inept handling of the problem so far.

The president initially did not take the situation seriously. “What crisis? Go ask [US President George W. Bush,” Lula said in September.

In early October, he said that while the crisis was “a tsunami” for the US, it would cause only “a small ripple” in Brazil.

The following week, the Sao Paulo stock exchange, or Bovespa, plummeted 20 percent, the currency fell 13 percent against the US dollar, the country’s central bank added 100 billion Brazillian reals (R429 billion at Thursday’s exchange rate) to the economy, and Lula said absolutely nothing.

Lula believes he can isolate Brazil from the rest of the world. He cannot. It is not possible when nations are connected in a global economy.

To show that Brazil is less dependent on the US, Lula said the nation now sent 14 percent of its exports there, compared with 25 percent in 2002. But a large portion of its raw materials shipped abroad are turned into goods sold to Americans.

The president thinks his government can prevent an economic slowdown by continuing to spend heavily on Brazil’s infrastructure. The plan cannot work; not when mandatory expenses consume more than 90 percent of the annual federal budget. And it will not be possible as Lula has hired more public workers and granted them more generous wage increases than any other Brazilian president, leaving only 6.1 percent of net federal revenue available for public works projects next year.

Lula said the country’s federal banks could replace private banks as the main providers of liquidity in a world credit crunch. They cannot.

Federal banks originated less than 35 percent of Brazil’s credit outstanding. And one currently lacks the funds to meet the growing number of borrowers knocking on its doors.

Over the past few years, consumers in the developed world have followed their political leaders’ poor financial advice. They have overspent and ended up without homes, jobs and money.
Now, consumers in emerging economies such as Brazil find themselves at a similar juncture. Let us hope they know to be sceptical of advertisements, especially those written by the government.


Source

1. Business Reporter – 12/07/2008

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