Wednesday, January 28, 2009

Does Brazil have a cash flow problem?

Brazil seems to be having some money troubles by the looks of the press. It's not good news for Latin America when its largest economy slows, especially when until just recently it seemed Brazil (the depreciation of the Real aside) was well relatively well poised to weather the storm.

Like its fellow BRIC country's, Brazil is far from immune to the global crisis. The country is still heavily dependent on commodity exports, which was the main engine of growth for both the Brazilian economy and stock market the past few years.

Despite reports that consumer spending is still holding up and that Brazil's big state conglomerates like Petrobras are increasing spending (
see MercoPress article here), it simply won't be enough to keep the economy afloat forever—and it definitely will not be enough to maintain growth levels of 4-5%.

Poor Ronaldo seen here losing at the French World

Now... for the grim news. While just days earlier Petrobras reported it will be increasing spending, yesterday things did not go its way when it went shopping in international markets to raise money. The company was forced to put off plans to sell bonds because the cost of borrowing to finance the bonds in dollar denominated debt was simply too high (
see Bloomberg article here)

Moving on. Brazil's government also had some bad news to bring to the table, announcing plans to freeze roughly 6% of its planned spending budget for 2009 because slow economic growth is eroding tax collection (
see bloomberg article here)

To round up the negative news is one last story concerning loan defaults in Brazil. Credit card spending may be surging, people may be packing the stores but they aren't paying their bills. Loan defaults surged last month to their highest since September 2002 (
see Bloomberg article here).

Not good news people...

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