TheEconomist

Finance Minister Guido Mantega gave in Brasilia a few cues to the decision Central Bank´s monetary policy committee (copom) is taking at this exact moment on what to do with basic intereste rates in Brazil.

We are divided: most os our economists were betting on a hardstop on rates falling curves planned before.

Even they stop it tomorrow, decidion is annouced, it would be simply a break to breath and unerstand better what the hell is going on in Uncle´s Sam banks…

Central BC committe was working for many months to give a help to economic growth, in order to make sure Brazil´s GDP would keep on a sustained goodwill path starting from something more than 5% in 2007, 6% in 2087 (municipal elections in Oct 5th), 6,5% 2009 and the magic 7% exactly in presidential elections year!

Now, no-payers in the States are shaking things around the overfinacerized global capitalism.
There is an spectre rounding not only Europe like in 19th century but the wole blogal village now.

Woukd there be a recession in the States, following the present credit crisis in the mortgage system spreading sub-porimes roten papers around banks all over.

Is there gonna be a world recession?

We don´t think so, but you better take your precautions… like not believing anibody, not even the economist next door.

Or next blog.

I say there won´t be a recession, but an adjustment all over the globalized economies.

It´s ridiculous to expect that a people like the Americans, modern Romans leading manking to the stars, has won all the batlles against all the socioeconomic engeneering challenges, to begin with American Revolution and going over The Great Depression and…

Well, I know very well the Amnericans, my son is one of them. I´ve been covering Insternational Monetary Fund (IM) annual meetings for over two decades.

As a Finance minsiter´s press officer during the Real Plan implantion and consolidation, I got insede the monster - it´s nice the building from inside, the general-manager rooms, the women around… well-dressed female PhDs

I used to jave a fried there, who´s retired now, that introduced me to the  IMF building at 19th street undergrounds - it´s sort of mindblowing, my friends from Berkeley would say.

At a time, around the end of 1998, I even accepted to participate of the Brazilian small delegation headed by Finance Minister Pedro Malan - well, I thought I still was a Marxist, but I also had to help the nation overcome the foreing crisis and we´ve got to save the new and stable Real…

After IMF agreement in 1998 we decidend to leave the Executive. In early 199 we quited Government, toghether with Gustavo Franco, replaced by Henrique Meirelles at Banco Central (where companheiro Lula kept him up to now).

Read all that, then you already know what I think about tomorrow´s annouce by Brazilian Central Bank´s monetary policy committe - don´t you?

All my friends on the economic midia sage believe the  basic interest rates (selic rates) will b cutted by 0,25% only (modifying the downward trend followed in the last  months to get advantage of good fundamentals.

Market operators expected a cut by 0.5% before the mortgange crisis in the US.

May I tell you my game?

They won´t do anything but stay where they are: watching tv to see what´s going on around with the US and European banks, the credit and, last but not least, inflation expctations outside and specially inside Brazil.

Finance Minister Guido Mantega said we´re going tru some consumer pressure on prices. “I don´t see any major inflation pressures, but consumer is high at this moment, whic is good”, he saida few hours ago.

To good unerderstanders, half a word is enough.

I´d keep basic rates where they are,  for two more weeks or so  -  and then see what happens,  wait to see what goes on with inflation and economic growth at home.

Nothing like a day after another one, says the Portuguese.

Everything looked nice today in Brazilian economy - even the stock markets went up again in Sao Paulo (2,11%), following Wall Street (Dow Jones up 1,9, Nasdaq 2,5%).

And, basically, the exuberance spread around by US Federal Reserve with a few more billions given to save banks.

Exchange rates in Brazil keeps on floating, as it should be in this world finance crisis:

US dollar was negotiated by the end ot the day at R$ 1,966 for US$ 1,00 (better than crisis breaking point of 2,0).

All figures are far out in Brazilian economy, at least to Banco Central:

* Foreing Reserves are up again in few days, from US$ 158 billions to US$ 161 this Wednesday;

* Inflation is under control (small pressure on July prices);

* Foreing commerce must end this year with a surplus around US$ 44,5 billion, as Central Bank´s directors told the press this evening in Brasilia.

The balance of commerce registered a surplus of US$ 44,3 last month, just a little bit lower than June´s figures (US$ 44,3 bi).

Well, as a friend from Rio said today at an internet meeting, the only thing President Lula is in debt with Brazil is a deep economic reform.

To cut public expenditures (which are growing as GDP´s 5%) to modernize the country and GNP growth at sustained 7% yr without destroing Amazon forest for that purpose.

No more than the usual - that´s what is expected from cabinet meeting President Lula is helding this Thursday to listen Minister of Finance Guido Mantega on the external finance crisis.

He´s got nothing new to say but reinforce the goodness of Brazil´s accounts and economic situation: foreing reserves are about US$ 160 bi, balance of commerce surplus around US$ 40 bi this year and inflation goals being fulfilled (around 4% and under control since Real Plan in 1994).

But Lula´s goverment has already started to act against the worst thing he could expect from now to 2010 when there will be presidential elections (Constitution doesn´t allow third terms but expects to help elect his successor based on the alliance between his Workers Party (PT) and conservative PMDB.

The turmoils in stock markets this Tuesday - São Paulo followed Dow Jones 2,1% fall and closed down 2,7%, like most of stock markets around the world, in the footsteps of US finance system crisis (Barclays, who could say that, was the one under strong market pressure at Wall Street ).

What happned today in US and in Brazil has the same logic: investors want Federal Reserve to cut basic rates (presently at 5,25% aa) anytime from the beggining of the crisis, about two weeks ago.

When they found out the Fed wouldn´t give any indications that basic rates will be cutted, even at the meeting scheduled for Sept. 18th, everything came down in the markets.

Investors selling stocks that had gone recent price rises also helped this movement, but in the center of it there´s a growing feel of uncertainity about how large will the hole be at the end of the on-going adjustment  in US  financial system.

Impressions in Brasilia this Tuesday night, inside goverment and among Congress people, is that the finance crisis may be deeper than we´ve been thinking up to now and it will cause a recession in American economy that certainly will cut Brazilian GNP growth from 5% this year to something like 4,5% next year.

This is not good news for Lula - today he had another bad one comming form Supreme Court that accepted the criminal denounces against 40 people involved with the gang that promoted corruption between leftist PT and  rightist allied parties from 2003 to 2005.

President Lula said this morning in his weekly radio talk that Brazilian economy has not been hit yet by the American house-financing crisis, although there are enemies trying to make this happens for political purposes. 

Yeah, he´s right: up to now there´s nothing wrong with Brazilian markets this Morning with central banks all over agreed to put some money to calm down speculators.

Sao Paulo SE was up 2% a few moments ago and probably will follow NY tendencies today.

Exchange rate between Brazil´s real and US dollar is stable this afternoon and it is expected to flutuate around 1,9 and 2,1 in the immediate future.

One thing  people at Finance Ministry told us off the record is the clear perception of someone being actually inside the eye of the hurricane, as minister Guido Mantega said last week.

Even you can´t see it cleary, you feel it´s around - and it´s terrific such as a friend from Austin told us about images coming from Caribbean islands hit by Dean yesterday.

US Federal Reserve kept on injecting money on the American banking system, as did the Japanese monetary authority, which is helping to keep the markets calm, like it was in Europe today. 

The “thing” is the perception that there is a financial internacional crisis on the going and investors are moving  towards US bonds, leaving behind worried emergent markets.

Brazil´s risk rate is still high, compared to other countries, around 215 points at JP Morgan.

Nobody doubts Brazilian GNP will close this year around 5% - the highest in this century and the first step for Lula´s allied parties dreaming about some kind of third term without Lula (he´d rest for coming back for years later), maybe with Defense minister Nelson Jobim (PMDB) and Civil Affairs minister Dilma Roussef (PT).

It´s all still, the dreams. People sleeps with an open eye.

Real side of Brazilian economy is doing well upt to now.

And it will get better with the green revolution (ethanol and conservation of Amazon forest), paving the road for next years of not so modest GNP rates.

People who sleeps deeply usually are more optimistic and dremans Brazilian economy growing at 7% in election year of 2010.

Doing business or any other sort of relation with Brazil this Monday? There´s no worth news in the economic front yet (stock market is about to open in Sao Paulo).

So let´s go to Civil War in Rio de Janeiro  (some Sports included):

*President Lula may keep 2,000 National Security Force troops in Rio de Janeiro state, to enforce law against narcoguerrillas and police-made militias in the favelas up-on-the hill shantytowns, even after Pan American Games ended Sunday.

(US won the 42 all-American countries competition, followed by Cuba then Brazil, as gold condecoration is concerned).

Brazilian serious air crisis ( 2 air disasters with 400 deaths in 10 months) started to be managed by new Defense minister (and perhaps future presidential candidate), Nelson Jobim, southern border tough politician with good public image, president of Supreme Court until last year, and, last but the most important, did not get rich doing politics. 

Lula has already indicated he would like to see a Safra Bank director, friend of him and good executive, as new  Airports Infra-structure Authority (Infraero) CEO, instead of already fired an Air Force official who did nothing to stop air crisis.

And perhaps will be found guilty for letting PT  (Lula´s Workers Party) activists to take over the state owned company, which helped to speed up the air crisis.

PS - Swedish movie diretor Ernst Ingmar Berman (photo) has died last night, leaving about 50 great movies such as Das Schlangenei (The Snake Egg), which is an alert over hiperinflation on people´s minds and hearts.

If you´re doing business (or have any other link) with Brazil, watch at least two points when upgrading your information on this country:

# 1. Do not fly to or from Brazil: stay where you are, use phone lines and internet, instead of personal contact if you need to meet your business partners, staff, relatives and so on.

We´ll let you know when we ourselves start flying again inside our country, ok?

We´ve being using jeeps - because roads also are in very bad situation for the same reason jets falls over Amazonia and Sao Paulo: no investment in the last 2 decades and a ready-to-go US$ 1 trillion GNP emerging economy in a political wetern-type mass democracy for 22 years now.

# 2. Interest rates paid by  Brazilian federal bonds - one of the most really interesting investment options in the world - will probably stop its way down,  since there´s now an orange light on the world economic outlook after the overfinancing bubble disclosing in the US economy, reflecting on Asia and Europe markets this Friday, 27.

In case of US problems impact on Asia and emerging markets, Brazilian exports like raw materials for China, Korea and Japan will suffer from price lowering,  coming from lower imports from asian economies. 

In the political front, Lula´s government started to draw its future this week, following the national crisis over the TAM Air Bus exploding in Congonhas, Sao Paulo downtown airport: the new Defense minister is not jut a tall gaucho from the South pampas, but also a former head of the Supreme Court, Fernando Henrique Cardoso´s minister of Justice and now the manager in charge of solving Brazilian air crisis.

If minister Nelson Jobim succeeds, Lula, his party PT and allied PMDB will have got the ideal solution for a candidate to run for President in October 2010.

Lula is the only leader that could unite PT and PMDB but Constitution doesn´t accept third terms.

SP Stock Exchange opened in good shape reflecting the US GNP disclosure. Dollar is a little bit lower again - it´s about 1,85 reals for each US dollar (yesterday it was 1,92).

The problem is the country risk, which went up again: from 185 points last week to 220 points yesterday and 230 points  this Friday.