Positive Change in Brazil

Since I last mentioned Brazil, the country has seen some positive developments that should be noted in this column.

As you may recall, high interest rates have continued to cut consumer spending in Brazil, leading to the slowest economic pace in nearly two years. Economists have been insisting that President Luiz da Silva is going to have to drastically cut interest rates (from a whopping 18.5%) to encourage spending and investment in the nation.

Last month, da Silva slashed rates to 17.25% –not low enough yet, but it’s a good start. In addition, the country’s central bank paid the International Monetary Fund (IMF) the $15.5 billion it owed ahead of schedule. This allowed Brazil to save $1 billion in interest and be debt-free with the IMF for the first time in 20 years.

The current commodity price cycle is also helping to boost the economy, as Brazil is a major producer and exporter of both iron ore and sugar.

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“The investing environment has been improving over time,” says AGF Funds Inc. Vice-President and Portfolio Manager Patricia Perez-Coutts. “It certainly evolved [over the past three years], from a left-leaning political party that was in danger of abandoning commitments to a darling.”

The country’s Bovespa benchmark stock index (which included 57 stocks trading on the Sao Paulo exchange) has seen an average 77% return since 2002, and foreign investors have caught on to the trend.

While the new developments we’ve seen in Brazil are encouraging, the country still has many hurdles to overcome, and I, for one, wouldn’t be betting my retirement savings on this economy’s future growth prospects.