Brazil's economic boom is halted by global credit crunch as country still
depends heavily on its commodity exports.

RIO DE JANEIRO, BRAZIL (FILE) REUTERS -
Only months after investors believed Brazil was finally emerging as
an economic heavyweight, the snowballing global financial crisis has brought
the Latin American giant back down to earth.
Brazil's stock market had gained eight-fold in just over five years,
driven by strong domestic demand and a seemingly insatiable appetite for its
main exports, from iron ore and steel to sugar and soybeans.
But the Bovespa stock index sank to its lowest in around two years on
Wednesday (October 08) morning, and is down almost 50 percent from its
all-time high of 73,920 points on May 29.
Brazil's currency, the real, has lost about one-third of its value in
just over a month.
Falling commodity prices is hitting Brazil hard, as the country still
depends heavily on natural resources and agricultural products.
Economic analyst, Antonio Carlos Porto, said that Brazil's exports
would lose because of falling demand, but would gain with a stronger dollar.

"This (dollars gaining value) sort of compensates for Brazil's
exporters, but the global markets are shrinking, and probably our exports will
suffer," he said.
In addition, some economists say foreign direct investment will slide
and so worsen the balance of payments, which is already under pressure from a
narrowing trade surplus.
President Luiz Inacio Lula da Silva, a leftist whose popularity ratings
hit record highs last month thanks to a strong economy and higher social
spending that has helped cut poverty levels, has been constantly downplaying
the local impact of the global credit crunch.
At an oil event on Tuesday (October 07), Lula said Brazil would offer
part of its reserves to aid exporters, but there would be no financial
bailout.
"We took another measure, in order to allow Brazilian exporters to
use part of our reserves without reducing our reserves, because these are
loans to aid our exports, and we are taking actions everyday. There will be no
financial bailout," he told a crowd of oil workers.
The central bank recently started selling dollar repurchase agreements
and swaps to inject liquidity into financial markets and shore up confidence.
It has also eased reserve requirements for banks, but critics say Brazil was
slow to react to the spreading crisis.
Some analysts say the writing was on the wall months ago and that
policymakers and investors alike ignored the threat of a commodities price
slump.
Economist Antonio Carlos Porto added that Brazil's exporters will only
receive a modest aid, which may be of little help.
"What is being done in relation to exports, is to give more credit
for exporters. Brazilian banks are offering more credit to exporters and
Brazil is inducing foreign banks to offer more credit for Brazilian exports,
but this credit will be very modest," he said.
In Brazil's favor, however, the market mayhem may be more a result of
foreign investors dumping emerging market assets to cover losses elsewhere
than a reflection of Brazil's economic fundamentals.
Lula also criticized the International Monetary Fund's (IMF) attitude
towards the credit crisis.
"When something happened in Argentina, everyone would give
suggestions, the IMF (International Monetary Fund) was there. Now where are
they (IMF) now in the U.S. crisis, where is the IMF now? Why isn't the IMF
there to offer suggestions, why aren't they in europe to offer
suggestions," he said.
Brazil's economy grew at a 6 percent annual rate in the second quarter
of this year and was expected to expand around 3.5 percent in 2009, but
investment bank Morgan Stanley revised its forecast for next year to 2 percent
on Monday and other economists are expected to follow suit.
Latin America's largest country is not the only emerging market to be
taking a beating as rattled investors flee from risk. Stock markets in Mexico
and Argentina had fallen 38 percent and 40 percent from this year's highs,
respectively.