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Why Brazil is weathering the global financial crisis this time

President Luiz Ignácio Lula da Silva met with French President Nicolas Sarkozy in Paris Wednesday before heading to the G-20 summit in Britain.

By Tyler BridgesMcClatchy Newspapers / April 1, 2009

Brazil's President Luiz Inacio Lula da Silva walked past guards as he arrived at the Elysee Palace in Paris, on Wednesday, ahead of the G-20 summit. Lula and France's President Nicolas Sarkozy are building on the two nations' common call for tighter regulations of financial markets before heading into the G-20 summit.

Jacques Brinon/AP

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Rio de Janeiro, Brazil

Lolita Morinigo has lived through sharp ups and downs in the Brazilian economy over the past 24 years as the owner of two clothing stores here.

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It's a downtime now, with consumer spending dropping and Brazil plunging headlong into a recession. Business at Ms. Morinigo's two Flamengo neighborhood stores has fallen by 40 percent from a year ago.

On a recent Saturday, Morinigo sat on a couch in her women's clothing store, and her four salesclerks stood idle. They had no customers.

"But I don't think the crisis will last long," Morinigo said. "We've got a new collection coming out next month. The situation will improve."

While analysts expect a tough 2009 for Brazil, no one expects the global crisis to unleash hyperinflation, prompt huge layoffs, or cause an economic depression this time in the world's ninth-largest economy.

With inflation tamed, the Central Bank brimming with dollars, and businesses increasingly competitive on a global stage, Brazilian officials expect to weather 2009 and begin growing again in 2010. The government is spending billions of dollars to create construction jobs and has reduced sales taxes to stimulate sales of new vehicles. Brazil is benefiting today from putting its economic house in order during the past 15 years.

"I say every day Brazil was the last country to be affected by the crisis," Brazilian President Luiz Inácio Lula da Silva told reporters after meeting with President Obama on March 14. "But we also have the possibility to be one of the first countries to resolve and get out of the crisis. We don't face any problem in our financial system."

Indeed, Brazil's problems stem from international factors – a lack of credit and collapsing demand abroad for exports of its meat, iron ore, and airplanes – not from domestic financial shenanigans or government mismanagement, as has happened in the past.

"This is a crisis that was caused by white people with blue eyes," Mr. Lula said in late March. "And before the crisis, they looked as if they knew everything about economics."

Autoworkers, construction workers, and others in Brazil – about 750,000 in all since November – now find themselves jobless. The stock market has plummeted nearly 50 percent since peaking in August. The country's currency, the real, has lost about a third of its value versus the dollar, making imports that much more expensive for retailers.

Among the newly unemployed is Ronaldo Joao Rocha.

He was giving his name and other vital details recently to a job assistance worker sitting at a computer terminal in a high-ceilinged room where the unemployed apply for work at long rows of white tables.

In September, about 800 people a day came to the office in a rundown neighborhood in Sao Paulo to register their names in a job bank. It now attracts 1,500 a day, said Izilda Leal Borges, who helps manage the office.

In January, the union-run office had 13,500 job vacancies. Now: 9,000.

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