BRASILIA—Brazilian Finance Minister Guido Mantega vowed that a weaker currency, more government-backed lending and other stimulus measures will reactivate the once high-flying South American economy, whose recent stagnation has prompted some economists to predict an era of modest growth.
Late Wednesday, Brazil's central bank dropped its benchmark overnight interest rate to a historical low of 8.5%, marking the latest in some four percentage points in rate cuts since last year, a move Mr. Mantega said would stimulate lending and investment.
Brazil's interest-rate cuts have helped weaken its currency, the real, by around 20% in recent months to the psychologically important level of two per dollar, a move that Mr. Mantega contends will create better growth conditions by lifting the competitiveness of exporters.
"Things are getting better," Mr. Mantega said at the outset of an interview Wednesday in his offices in Brasilia.
"The economy is already showing signs of recuperation. Credit is going up, interest rates are going down, the currency is more favorable." Brazil's economy likely stalled in the first three months of the year, analysts say.
But reviving growth carries high stakes. Brazil's left-leaning government has tied its political fortunes to delivering consistently high growth rates in a nation with a long history of booms and busts.
The formula, much of it engineered by the 63-year-old Mr. Mantega, has included relying on big government banks to boost industries and a greater willingness to intervene in the economy on issues, such as the currency.
It is mostly a success story. Brazil shrugged off the 2008 financial crisis, and later surged to 7.5% growth rates in 2010.
Along the way, Mr. Mantega, who studied economics at the University of São Paulo, became something of an emerging market celebrity at international forums such as the G-20, serving as a key voice promoting more interventionist economic policies instead of the free-market principles long espoused by the U.S.
In the interview, Mr. Mantega criticized European efforts to try to resolve its debt crisis through budget cuts, and predicted the crisis will prompt a global move to what he called Brazilian "developmentalist" economics.
"This Brazilian model will be adopted by more countries," Mr. Mantega said.
"The European countries don't have a way out without changing their policies. They will be forced by their populations to change their ideas.
Their ideas aren't finding success."But slowing growth has put Mr. Mantega's formula to the test. Brazil's GDP growth slowed to 2.7% last year and some economists believe it might not even reach that rate this year.
Mr. Mantega says this year's growth will be at least 3%, rather than the 4.5% he predicted at the start of the year. Mr. Mantega attributed Brazil's slower growth rates to a knock-on effect from the European debt crisis, which has been aggravated by orthodox economic policies including fiscal austerity.
He said that a big lending boost by Brazilian government banks such as Banco do Brasil and a tax cut had already started to revive the country's car industry. But global investor sentiment has grown more skeptical of Brazil's long-term growth prospects.
Several economists say Brazil won't return to fast growth without tackling tough fundamental issues such as government inefficiency, high taxes and lack of competitiveness of protected industries. Mr. Mantega said these investors are wrong.
"This perception is mistaken. It's a perception made in the moment, that looks only at momentary results, and doesn't take into account the overall condition of Brazil," Mr. Mantega said. One big difference this year, he said, may come from a weaker currency.
Mr. Mantega, who once accused the U.S. and Europe of engaging in a currency war of devaluations to boost their economies, says Brazil's currency has reached a more competitive level after losing nearly 20% of its value against the dollar.
When asked whether that was enough, he said: "You can always say, well, can your life be better? Yes, it can be better. But is it good? Yes, it is good."
Mr. Mantega also reiterated that Brazil's currency is floating and the government isn't trying to set a specific rate. Meantime, the rapid decline of the currency has sparked concerns that inflation may rise.
Mr. Mantega said Brazil's economic landscape was also becoming more favorable as the government provides conditions to reduce interest rates that have been among the world's highest, a leftover from the country's long battle with inflation.
Mr. Mantega said the government had reduced deficits, built up foreign reserves, and shored up the economy enough to clear the way for lower rates.
"In the past, Brazil didn't have the solidity to work with lower interest rates," Mr. Mantega said. He said in the best of worlds, Brazilian rates would fall further and converge with those of other emerging-market countries with similar economies.
"We are creating the conditions for lower rates. This isn't just us voluntarily lowering rates."
Some economists have criticized government efforts to spur credit, pointing to the heavy debt loads that many Brazilian households built up heavy debt loads buying cars, appliances and vacations during a previous credit boom.
Mr. Mantega countered that criticism by saying average debt loads are not high by international standards. Default rates rose in part because banks tightened their lending practices, a process being reversed.
Mr. Mantega said the fact that more Brazilians are getting jobs that pay better means that they will be able to handle bigger debt loads.
Government banks, meantime, have rigorous loan standards and capitalized enough to boost lending, he said. Brazil is also seeking to pressure private banks into lending at lower rates, both by using government lenders to bring the market down and by using a bully pulpit to publicly demand lower rates.
That should revive domestic spending and growth, Mr. Mantega contended. Borrowers in Brazil can pay an average of 40% per year on loans. "There is still a lot of room for loan rates to come down," he said.
wsj.com
Late Wednesday, Brazil's central bank dropped its benchmark overnight interest rate to a historical low of 8.5%, marking the latest in some four percentage points in rate cuts since last year, a move Mr. Mantega said would stimulate lending and investment.
Brazil's interest-rate cuts have helped weaken its currency, the real, by around 20% in recent months to the psychologically important level of two per dollar, a move that Mr. Mantega contends will create better growth conditions by lifting the competitiveness of exporters.
"Things are getting better," Mr. Mantega said at the outset of an interview Wednesday in his offices in Brasilia.
"The economy is already showing signs of recuperation. Credit is going up, interest rates are going down, the currency is more favorable." Brazil's economy likely stalled in the first three months of the year, analysts say.
But reviving growth carries high stakes. Brazil's left-leaning government has tied its political fortunes to delivering consistently high growth rates in a nation with a long history of booms and busts.
The formula, much of it engineered by the 63-year-old Mr. Mantega, has included relying on big government banks to boost industries and a greater willingness to intervene in the economy on issues, such as the currency.
It is mostly a success story. Brazil shrugged off the 2008 financial crisis, and later surged to 7.5% growth rates in 2010.
Along the way, Mr. Mantega, who studied economics at the University of São Paulo, became something of an emerging market celebrity at international forums such as the G-20, serving as a key voice promoting more interventionist economic policies instead of the free-market principles long espoused by the U.S.
In the interview, Mr. Mantega criticized European efforts to try to resolve its debt crisis through budget cuts, and predicted the crisis will prompt a global move to what he called Brazilian "developmentalist" economics.
"This Brazilian model will be adopted by more countries," Mr. Mantega said.
"The European countries don't have a way out without changing their policies. They will be forced by their populations to change their ideas.
Their ideas aren't finding success."But slowing growth has put Mr. Mantega's formula to the test. Brazil's GDP growth slowed to 2.7% last year and some economists believe it might not even reach that rate this year.
Mr. Mantega says this year's growth will be at least 3%, rather than the 4.5% he predicted at the start of the year. Mr. Mantega attributed Brazil's slower growth rates to a knock-on effect from the European debt crisis, which has been aggravated by orthodox economic policies including fiscal austerity.
He said that a big lending boost by Brazilian government banks such as Banco do Brasil and a tax cut had already started to revive the country's car industry. But global investor sentiment has grown more skeptical of Brazil's long-term growth prospects.
Several economists say Brazil won't return to fast growth without tackling tough fundamental issues such as government inefficiency, high taxes and lack of competitiveness of protected industries. Mr. Mantega said these investors are wrong.
"This perception is mistaken. It's a perception made in the moment, that looks only at momentary results, and doesn't take into account the overall condition of Brazil," Mr. Mantega said. One big difference this year, he said, may come from a weaker currency.
Mr. Mantega, who once accused the U.S. and Europe of engaging in a currency war of devaluations to boost their economies, says Brazil's currency has reached a more competitive level after losing nearly 20% of its value against the dollar.
When asked whether that was enough, he said: "You can always say, well, can your life be better? Yes, it can be better. But is it good? Yes, it is good."
Mr. Mantega also reiterated that Brazil's currency is floating and the government isn't trying to set a specific rate. Meantime, the rapid decline of the currency has sparked concerns that inflation may rise.
Mr. Mantega said Brazil's economic landscape was also becoming more favorable as the government provides conditions to reduce interest rates that have been among the world's highest, a leftover from the country's long battle with inflation.
Mr. Mantega said the government had reduced deficits, built up foreign reserves, and shored up the economy enough to clear the way for lower rates.
"In the past, Brazil didn't have the solidity to work with lower interest rates," Mr. Mantega said. He said in the best of worlds, Brazilian rates would fall further and converge with those of other emerging-market countries with similar economies.
"We are creating the conditions for lower rates. This isn't just us voluntarily lowering rates."
Some economists have criticized government efforts to spur credit, pointing to the heavy debt loads that many Brazilian households built up heavy debt loads buying cars, appliances and vacations during a previous credit boom.
Mr. Mantega countered that criticism by saying average debt loads are not high by international standards. Default rates rose in part because banks tightened their lending practices, a process being reversed.
Mr. Mantega said the fact that more Brazilians are getting jobs that pay better means that they will be able to handle bigger debt loads.
Government banks, meantime, have rigorous loan standards and capitalized enough to boost lending, he said. Brazil is also seeking to pressure private banks into lending at lower rates, both by using government lenders to bring the market down and by using a bully pulpit to publicly demand lower rates.
That should revive domestic spending and growth, Mr. Mantega contended. Borrowers in Brazil can pay an average of 40% per year on loans. "There is still a lot of room for loan rates to come down," he said.
wsj.com
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