Goldman on Brazil

8/3/2019 Goldman on Brazil

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Latin America Economic AnalystIssue No: 11/19

September 23, 2011

Goldman Sachs Global Economics,Commodities and Strategy Research

at https://360.gs.com

Important disclosures appear at the back of this document.

Paulo Leme

[email protected]

+1 305 755 1038

Alberto Ramos

[email protected]

+1 212 357 5768

Eduardo Cavallo

[email protected]

+1 212 357 5772

Petya Kehayova

[email protected]

+212-934-0199

High Growth in Argentina and Crisis Management

Experiences in BrazilArgentina grew by 9.5% in 1H2011, driven by significant

pre-electoral policy stimulus and a favorable externalenvironment. Above-trend expansion of domestic demandkept inflation at 20%-plus (private sector estimates). High

inflation and overly stimulated demand appreciated the realexchange rate and reduced the trade surplus, likelytriggering a faster rate of ARS depreciation after theOctober elections. President Kirchners reelection bid isclearly benefiting from high growth and a dividedopposition. Polls suggest that President Kirchner will beeasily reelected (likely in the October 23 first round) andthat her political party may even regain control ofCongress. President Kirchner has advocated deepening thecurrent model during a second term. The Kirchner policymodel is characterized by ad-hoc and unsystematic policymoves geared to maximizing domesticgrowth/consumption. However, we expect policymakers toface significantly deeper macro challenges ahead,

particularly if the external backdrop worsens.

In light of the deterioration of the financial situation inEurope, it is timely to understand how the Brazilianauthorities would respond to a new global financial crisis.Brazil is capable of dealing with financial shocks becausethe fiscal and external accounts are in reasonable shape; thedomestic banking system is strong; the stock of reserves islarge; and there is ample fiscal and monetary leeway toimplement countercyclical macro policies. In addition, theeconomic team is experienced at crisis management. Strongexternal financial shocks would shift the BoP to a deficit,weaken the BRL, reduce credit growth, and strain the

banking system. This would reduce real GDP growth, openan output gap and probably reduce inflation, opening the

scope for lowering interest rates. The Rousseffadministration is likely to implement a countercyclical policy response similar to that used in 2008. However,they are likely to be more proactive, easing macroeconomic

policies sooner, perhaps attempting more aggressive sector-oriented policies than before. We believe that theauthorities should implement ambitious structural reformsaimed at boosting total factor productivity and real GDPgrowth, making the economy more resilient to global

business cycles in the future.

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-5

0

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93 95 97 99 01 03 05 07 09 11

HP Output gap 1: 93Q1-11Q2


(%)

Source: Goldman Sachs estimates.

Chart 1 - Argentina: Output Gap inPositive Territory

14.1

25.718.5

4.1

7.7

1.7

0

5

10

15

20

25

30

35

Total Assets Loans Net Worth

European banks Other foreign banks(% of total)

Chart 2 - Brazil: The Participation of Foreignand European Banks in the Brazilian Banking

System is Small

Source: Sisbacen.


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Issue No: 11/19 September 23, 2011

ContentsFocus: Argentina - High Growth Likely to Deliver President Kirchner an Easy Reelection and Potentially Also Control of Congress 1

Introduction ............................................................................................................................................................................................................... 1The Real Economy Preformed Strongly During 1H2011 ...................................................................................................................................... 1Growth Maximization Implied Loss of Monetary Anchor and Gradually of Also the External Anchor ......................................................... 3President Cristina Kirchner Expected to be Easily Reelected for Another 4-Year Term ................................................................................ 5Government May Regain Control of Congress ..................................................................................................................................................... 5

Focus: Brazil - Potential Effects and Policy Response to the European Crisis ..................................................................................................... 7The Effects of the European Crisis in Brazil .......................................................................................................................................................... 7Transmission Channels of External Shocks to Brazil .......................................................................................................................................... 7Transmission of the Lehman Shock to Brazil in 2008 ........................................................................................................................................... 9Lessons from the Lehman Shock ......................... ................................................................................................................................................ 12Policy Response to Global Financial Shocks by the Rousseff Administration ............................................................................................... 12Conclusions ............................................................................................................................................................................................................. 14

Country Views and Forecasts .................................................................................................................................................................................... 15Argentina ..................................................................................................................................................... ....................................................... 15Brazil......................................................................................................................................................................................... ........................... 16Chile ..................................................................................................................................................................................................................... 17Colombia ...................................................................................................................................................... ....................................................... 18Dominican Republic ......................................... ................................................................................................................................................. 19Ecuador ............................................................................................................................................................................................................... 20Mexico ............................................................................................................................. ................................................................................... 21Panama ........................................................................................................................................................ ....................................................... 22Peru .................................................................................................................................... ................................................................................. 23Venezuela .................................................................................................................................................... ....................................................... 24

Main Financial Forecasts ........................................................................................................................................................................................... 25Forthcoming Data Releases from Latin America .................................................................................................................................................... 25Calendar of Economic and Political Events ............................................................................................................................................................. 26Global Macroeconomic Outlook................................................................................................................................................................................ 27


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Goldman Sachs Economic Research Latin America Economic Analyst


Focus: Argentina

High Growth Likely to Deliver President Kirchner an Easy

Reelection and Potentially Also Control of CongressThe economy expanded at a very exuberant pace during 1H2011 (+9.5% yoy) driven by significant pre-electoral

policy stimulus and an admittedly favorable external environment. Against a backdrop of a positive output gap,

the clearly above-trend expansion of domestic demand kept inflation well entrenched at 20%-plus (according

private sector estimates released by a group of congressmen). A combination of high inflation and overly

stimulated demand led to visible real currency appreciation and erosion of the trade surplus. This combination is

likely to trigger a faster rate of ARS depreciation after the October elections. President Kirchners reelection bid

is clearly benefiting from the dividends of an expanding economy and the fact that the opposition camp remains

deeply divided. Voters do not seem unhappy with the short-term high-growth / high-inflation trade-off. Recent

polls suggest that President Kirchner will be easily reelected for another 4-year term (likely in the October 23

first round) and that her political party may even regain control of Congress. President Kirchner has not

presented a well-articulated governing program and has instead advocated, in rather general terms, deepening

the current model during a likely second term. This is, in our view, a strong indication of broad policy

continuity. The Kirchner policy model has been characterized by ad-hoc and unsystematic policy moves geared tomaximizing domestic growth/consumption. However, we expect policymakers to face significantly deeper macro

challenges ahead that those faced currently as the current policy mix is showing increasing signs of distress even

under a still-favorable external environment. The policy trade-offs would become more severe if the external

backdrop turns adverse.

I never think of the future - it comes soon enough.

Albert Einstein (German-born American physicist; Nobel Prize for Physics in 1921; 1879-1955)

IntroductionAccording to the official Indec real activity figures, the

economy is headed for a banner year in terms of realGDP growth in 2011. In fact, the economy may expandclose to 20% in real terms during 2010-11. Non-government estimates also attest to the buoyancy of theeconomy, but they tend to show real GDP growth up to200bp below the official National Statistics Institute(Indec) estimates. The source of the perceived upward bias of the official figures seems to be a likelyunderestimation of the activity deflators, particularlyfor private consumption.

If the external backdrop improves somewhat before theend of the year a double-digit expansion of theeconomy in 2011 is within reach, although colored by

very high inflation readings (20%-plus) and a currentaccount balance that is expected to dip into deficitgiven the surge in imports driven by overly stimulateddomestic demand and real currency appreciation. Thoseare telling macro signs of an economy that is clearlygrowing beyond its structural speed limit (see Chart1). That is, it is admittedly far easier to deliver highshort-term growth than sustainable high non-inflationary growth over the medium term.

The Real Economy Performed Strongly During

1H2011

Aggressive pre-electoral policy stimulus and adistinctly favorable external backdrop (high commodityprices and solid external demand for non-commodities,particularly from Brazil) levered the performance of theeconomy during 1H2011, all the way into admittedlyoverheating territory (see Charts 1 and 2).

200

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450

00 01 02 03 04 05 06 07 08 09 10 11

Actual GDP SA

HP trend 1: 93Q1-11Q2

HP trend 2: 93Q1-08Q2

(ARS bn)


Chart 1: Economy Started to Overheat in 2010


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93 95 97 99 01 03 05 07 09 11



(%)


Chart 2: Output Gap in Positive Territory

According to Indec, real GDP grew a significantlyhigher-than-expected 9.1% yoy during 2Q2011,moderating only slightly from the high 9.9% yoy

expansion recorded during 1Q2011. The market waspositively surprised by the very high 2Q yoy expansiongiven that the monthly real GDP series (EMAE) waspointing to just 7.8% yoy growth.1

8.57.8

6.9

4.1

2.0

-0.8 -0.3

2.6

6.8

11.8

8.69.2

9.99.1

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14

1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11

(% yoy ; n.s.a.)

Chart 3: Solid Real GDP Growth

Source: Haver Analytics .

The growth momentum also remained high insequential terms: +2.47% QoQ sa (10.2% annualized)moderating from 3.14% QoQ sa during 1Q2011 (13.1%annualized). 2 In all, the economy was able to maintainso far during 2011 the very high buoyancy seen late in2010: between 4Q2010 and 2Q2011 the economy

expanded on average at a very high 2.9% QoQ sa rate(11.9% annualized); which is much higher than ourestimated 1.0% QoQ sa trend growth.

1The accuracy and integrity of the official (Indec) real sector, labor

market, and inflation data have been questioned. The widely heldperception is that the official real sector statistics somewhat overstatethe level of activity (by about 1 to 2 percentage points) given thelikely underestimation of the GDP deflator.

2 The 1Q2011 sequential growth rate was revised upwards from2.82% qoq sa (11.8% annualized) to 3.14% qoq s.a. (13.1%annualized).

The economys strong cyclical expansion has beendriven by overly stimulated domestic demand. Privateconsumption spending grew a large +11.5% yoy during2Q2011, little changed from 11.3% yoy during 1Q2011and 11.5% yoy during 4Q2010. In sequential termsprivate consumption is reported to have expanded 2.4%

QoQ sa during 2Q2011, and an impressive 2.6% QoQon average over the last seven quarters (for a 20%cumulative expansion since 3Q2009). Publicconsumption has also been notoriously dynamic:accelerated to 11.9% yoy (5.6% QoQ sa) during2Q2011 from 9.9% yoy during 1Q2011. Investmentspending has also been expanding at high rates: +23.8%yoy, with investment in construction up 9.7% yoy andinvestment in machinery and equipment increasing alarge 41.3% yoy. Finally, the GDP componentmeasuring the accumulation of inventories andstatistical error subtracted 1.7 percentage points of GDPto growth during 2Q2011 (more than -0.9 of a

percentage point of GDP during 1Q2011). Net trade continues to be a drag on growth given theongoing ARS appreciation in real terms and above-trend domestic demand expansion. Export growthdecelerated sharply to 0.5% yoy during 2Q (from 7.1%yoy during 1Q) while import growth accelerated to avery high (+24.9% yoy, and a very large 9.8% QoQ sa).Hence, the drag of net exports on growth deepened to-3.1 percentage points of GDP during 2Q2011, from-1.9 percentage points of GDP during 1Q2011.

On the supply side, industrial production growthremained strong (13.7% yoy) but the agriculture andlivestock sector contracted 5.5% yoy. We also highlightthe buoyancy of transportation and communications(+9.9% yoy during 1Q), retail (+17.3% yoy), andfinancial intermediation (+18.3% yoy). Finally, theconstruction sector cyclical expansion firmed to 10.8%yoy from 8.8% yoy during 1Q2011.

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1Q09 3Q09 1Q10 3Q10 1Q11

Inventorie s/Stat.Erro r Prv CPublic C InvestmentNet Exports Real GDP

Chart 4: Dom. Demand Driven Growth

(% GDP; based on YoY s.a. growth)

Source: Haver Analytics.


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Real GDP Growth in 2011 to Rival the

Expansion Recorded in 2010The economy was exceptionally dynamic in yoy andsequential terms during 1H2011 on the back of verysignificant fiscal and monetary stimulus, solid externaldemand (particularly for industrial goods from Brazil)and very favorable terms of trade. Furthermore, fiscaland monetary policy has remained highly stimulative sofar during 3Q2011 given the approaching October 23 presidential elections (negative real rates and publicspending expanding at very high rates).

Given the upward revision to the sequential growth rateduring 1Q2011 and the better-than-expected 2Q2011performance, the statistical carry-over for 2011 growthis now at a high 8.44%. That is, even if the economywere to remain flat at the 2Q2011 level, average realGDP growth in 2011 would already reach 8.44%. In all,the revision to 1Q data and the 2Q2011 positive growthsurprise bump (automatically) our forecast for realGDP growth in 2011 to 8.9% from the previous 8.2%.In fact, the 8.9% growth forecast assumes aconservative path for sequential real GDP growthduring 2H2011in order to factor in a challenging

external backdrop, softening external demand fromBrazil, and post-election easing of the fiscal impulse.However, the risk to the current 8.9% real GDP growthforecast is skewed to the upside and we could envisagescenarios leading to double-digit real GDP growth in2011 (e.g., demand from Brazil and commodity pricesremains resilient, and the drag from net imports andinventory accumulation eases during 2H2011).

Growth Maximization Implied Loss of

Monetary Anchor and Also Gradually of the

External AnchorThe mercantilist trade stance and very lax macro policyenvironmentcharacterized by a populist fiscalapproach easily accommodated by monetary policycontinues to generate intense inflationary pressureswhich are undermining the sustainability of the currentgrowth cycle and the strength of the external balancesheet. In fact, the current account is moving into deficitunder the weight of surging imports (driven by above-trend domestic demand growth amid significant realcurrency appreciation), which more than offsetssignificant terms of trade gains. The erosion of the tradesurplus has been noticeable and has triggered the

Table 1: Argentina - Real GDP

(% change yoy) 09Q4 2009 1Q10 2Q10 3Q10 4Q10 2010 1Q11 2Q11

Real GDP 2.6 0.9 6.8 11.8 8.6 9.2 9.2 9.9 9.1

QoQ s.a. 2.3 3.6 2.9 0.6 2.97 3.14 2.47

Consumption

Private 2.9 0.5 7.3 8.1 8.9 11.5 9.0 11.3 11.5

Public 7.7 7.2 8.4 12.9 8.5 7.7 9.4 9.9 11.9

Investment -3.4 -10.2 13.1 18.9 26.6 24.7 21.2 19.5 23.8

Construction -1.2 -3.6 5.1 8.1 6.8 12.1 8.2 8.8 9.7

Equipment -6.6 -18.7 25.5 35.5 55.4 44.5 41.1 33.4 41.3

Exports 2.5 -6.4 4.2 18.2 27.8 7.4 14.6 7.1 0.5

Imports -4.1 -19.0 30.1 35.6 37.4 32.7 34.0 20.4 24.9

External sector contribution to growth0.8 1.8 -2.9 -1.4 -0.9 -3.1 -2.1 -1.9 -3.1

Source: Indec.

Table 2: Argentina - Contribution to YoY Real GDP

(% change yoy) 4Q09 2009 1Q10 2Q10 3Q10 4Q10 2010 1Q11 2Q11

Real GDP 2.6 0.9 6.8 11.8 8.6 9.2 9.2 9.9 9.1

Consumption 2.8 1.1 5.9 6.8 6.8 8.5 7.0 8.8 8.7

Private 1.9 0.3 4.9 5.2 5.7 7.5 5.9 7.6 7.1

Public 1.0 0.9 1.0 1.6 1.1 1.0 1.2 1.2 1.5

Investment -0.8 -2.4 2.5 3.9 5.6 5.3 4.4 3.9 5.2

Construction -0.2 -0.5 0.6 1.0 0.9 1.6 1.0 1.0 1.2

Equipment -0.6 -1.9 1.9 2.9 4.8 3.7 3.3 2.9 4.1

Net Exports 0.8 1.8 -2.9 -1.4 -0.9 -3.1 -2.1 -1.9 -3.1

Exports 0.3 -0.9 0.5 2.3 3.4 0.9 1.8 0.9 0.1

Imports 0.5 2.7 -3.4 -3.7 -4.3 -4.0 -3.9 -2.8 -3.2

Inventories/Stat.Error -0.3 0.2 1.3 2.5 -2.9 -1.4 -0.2 -0.9 -1.7

Source: Indec.


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adoption of a number of protectionist measures by theauthorities. In current Dollars, the trade balance surplusdeclined 21% yoy during January-July (to US$6.5 billion) but when measured at constant 2010 prices(i.e., unchanged terms of trade) the trade surplusdeclined a much large 64% yoy (to US$3.0 billion from

US$8.2 billion during January-July 2010) (see Table 3).

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180

1Q07 4Q07 3Q08 2Q09 1Q10 4Q10

Export Prices

Terms of Trade (n.s.a.)

(2000=100)


Chart 5: Favorable Terms of Trade

Table 3: Trade Balance, Jan-Jul 2011

Value Pr ice Quantity

Exports 24 19 4

Primary Products 26 32 -5

Manufacturing (Agricultural) 33 29 3

Manufacturing (Industrial) 24 9 14

Energy -7 31 -29

Imports 37 11 23

Capital Goods 35 2 32

Intermediate Goods 28 16 10

Fuels and Lubricants 102 35 49

Components and Parts for Capital

Goods 32 2 30

Consumer Goods including Autos 27 5 20

Consumer Goods ex Autos 26 . .

Automobiles 28 . .

Other 23

2010 2011 % Chge

Trade Balance (US$bn) 8.2 6.5 -21%

Trade Balance (US$bn at

constant 2010 prices) 8.2 3.0 -64%

Source: Indec.

% Change from 2010

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02468

101214

161820

Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10

Trade Balance (lhs)

Exports

Imports

(Bn. US$, 12-mo ro lling total)

Source: Indec.

Chart 6: Buoyancy of Imports Eroding TradeSurplus

Inflation Remains the Most Visible Macro

Imbalance

Entrenched high inflation remains the clearest symptomof an economy that is out of synch. However, thedisputed official Indec figures continue to show single-digit inflation (+9.8%) and extraordinary stability at themargin: Indec has reported headline monthly inflationat either 0.7% or 0.8% for 17 consecutive months (withcore bounded between 0.9% and 0.7% during the sameperiod); a remarkable statistical regularity (see Chart 7).

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

0%

2%

4%

6%

8%

10%

12%

Jan-10 Jun-10 Nov-10 Apr-11

% mom (rhs)

% yoy (lhs)

Source: Indec.

Chart 7: Consumer Price Inflation (Indec; officialfigures)

Credible non-government inflation surveys indicate thatinflation is currently running at more than double theofficial rate: i.e., 20%-plus. In fact, even the widelyquestioned official figures show that five of the nineCPI groups currently have yoy inflation readings indouble digits and none of them below 5%. Thisoutcome attests to how generalized inflationarypressures have become. In our assessment, inflation isfundamentally a reflection of the heterodox policy mixin place and monetary policy accommodation.Furthermore, the neglect of inflationary pressures inrecent years (in order to maximize short-term growth)has entrenched inflation at a very high level. Therefore,


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disinflating the economy is likely to require a multi- pronged, multi-year strategy as cementing price-indexation practices is increasing the inertia of theinflationary process, which is worsening the inflation-output "sacrifice ratio"; i.e., the required output loss tobring inflation down to the average level of Argentinas

main trading partners is rising.

Given the policy backdrop, we expect consumer priceinflation to hover at 20%-plus in 2011, and most likelyto remain entrenched in the 20% range during 2012.3

We do not expect the authorities to embraceconventional macro management policies to get a solidgrip on inflation, but we have noticed that in recentweeks the government has been expressing the desire tocontain wage settlements in 2012 below 20% (fromover 30% in 2011). This would be a small step todisinflate the economy, but certainly a step in the rightdirection.

0

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500

01 02 03 04 05 06 07 08 09 10F 11F

Nominal ARS/USD rate

Real ARS/USD rate

(2001=100; eop)

Source: Haver Analytics and Goldman Sachs.

Chart 8: In Real Terms ARS/USD is Returning to"1:1 Convertibility Level"

We expect the authorities to continue, until after theOctober elections, to use the exchange rate as the mainnominal anchor in the economy in order to preventfurther escalation of inflationary pressures. That is, aswas done throughout 2010, and most certainly until theOctober elections the authorities are likely to allow theARS to depreciate only gradually; with the upwardARS/USD drift significantly below that of inflation.However, use of the currency rather than rates to tame

inflation is leading to significant real exchange rateappreciation (see Chart 8) and concomitant erosion ofthe trade balance surplus. This will likely prompt theauthorities to allow the currency to depreciate at avisibly faster rate after the elections and throughout2012. In fact, when using the average of non-

3

The government, labor, and business representatives agreed toincrease the minimum wage by 25%, effective August 1. The 25%minimum wage increase is much higher than any reasonable estimateof productivity growth and is therefore likely to contribute to keepconsumer price inflation high in 2012.

government estimates for headline inflation the bilateralreal ARS/USD rate is now approaching the level seen before the 1:1 ARS-USD convertibility regime wasabandoned. However, we reckon that in multilateralreal terms the degree of real currency appreciation has been milder than when measured against the USD

given the observed appreciation in recent years of thecurrencies of other major trading partners (e.g., Brazil).

President Cristina Kirchner Expected to be

Easily Reelected for Another 4-Year TermPresident Cristina Kirchner won the mandatory August14 primary elections by a very large margin and is seenas the overwhelming favorite to win the October 23presidential elections. The August primaries were inessence a dry run for the October elections as all themain parties and coalitions had already settled on thecandidates that will represent them in October.

President Kirchner performed well in the primaries,winning a resounding 50.2% of the vote, leaving far behind the Radical Party candidate Ricardo Alfonsinwith12.20%, and former president Eduardo Duhalde(dissident Peronist), with 12.12%. The socialist partycandidate, Hermes Binner, received 10.2% of the vote,and former president Alberto Rodriguez Saa (dissidentPeronist) 8.2%. Based on recent public statements bythe main opposition candidates, it is highly unlikelythat the opposition camp will close ranks and form anymeaningful alliance ahead of the October 23 presidential elections. As such, President CristinaKirchner is well positioned to win reelection foranother 4-year term, very likely in the first round.

According to a recent Management & Fit poll(conducted Sept 2-6; error margin 3.1%), PresidentCristina Kirchner enjoys the preference of 51.9% ofvoters a month from the October 23 presidentialelections, followed at a very large distance by theSocialist Party candidate Hermes Binner with 11.6%and the Radical Party candidate Ricardo Alfonsin with7.5%. Finally, dissident Peronist former PresidentAlberto Rodriguez Saa polled fourth with 6.0%. Theseresults would guarantee President Kirchner a landslidefirst-round victory. For a first-round victory thewinning candidate must secure at least 40% of the voteand a 10ppt margin over the runner up, or at least 45%

of the valid votes irrespective of the margin over thesecond-most voted candidate. If these conditions arenot fulfilled, a runoff will take place November 20.

Government May Regain Control of CongressPresident Kirchner may get more than a resoundingreelection at the October 23 elections. The governmentmay in fact also regain control of Congress. On October23, beyond electing a president, voters will also renewone-third of the Senate (24 of 72 seats) and half of theLower House (130 of 257). The expected strongshowing by President Kirchner will likely help the pro-government legislators retain most of their seats and


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eventually capture a few extra ones. This may beenough to secure slight majorities in both chambers ofCongress and wrest control of the legislature away fromthe opposition. The opposition has enjoyed a slightmajority in Congress (more pronounced in the LowerHouse) since the 2009 mid-term elections but has been

very ineffective in driving its agenda given the lack ofcohesion among the opposition ranks (a reflection of itsideological diversity) and the strong party disciplinethat has characterized the official camp. Control ofCongress would lead to a significant concentration of power and would give the government legislativebacking for some of its most interventionist policies.

ConclusionThe economy continues to grow at a very fast pace, andso does inflation. However, voters seem pleased withthe short term high-growth high-inflation combination.President Kirchners reelection bid is clearly benefitingfrom the dividends of an expanding economy and thefact that the opposition camp remains deeply dividedin part a reflection of profound ideological and politicaldifferences among the political forces that oppose thegovernment. Recent polls show that President Kirchnerwill be easily reelected in the first round of vote and herpolitical party may even regain control of Congress.

President Cristina Kirchner has not presented a well-articulated governing program for the next four yearsand has instead advocated in rather general termsdeepening the current model during a likely secondterm. This is in our view a strong indication of broadpolicy continuity. The Kirchner policy model has been

characterized by ad-hoc and unsystematic populist policy moves geared to maximizing domesticgrowth/consumption.

As such, we expect the administration (after the likelyreelection) to react to policy challenges as they emergerather than embark on the execution of a clear-cutgovernment program for the next four years. In essence,we expect policy to be guided by a small set ofobjectives: deliver high growth and employment

creation even if that entails validating higher inflation, preserve the core of a number of cross-subsidies(energy, transportation) and taxes (agricultural sector),and maintain a trade balance surplus through the pursuitmercantilist and protectionist measures in order toshore up the current account and protect the stock ofinternational reserves. However, we expect policymakers to face significantly deeper macrochallenges ahead that those faced currently as thecurrent policy mix is showing increasing signs ofdistress even under a still favorable externalenvironment. In all, the government may be called tocompromise on some of its objectives during a potential

second term: e.g., accept slightly lower growth to prevent the inflationary pressures from escalating;validating faster currency depreciation to shore up thecurrent account; target/focus the growing publicsubsidies in order to protect the budget. Obviously, the policy trade-offs would become more severe if theexternal backdrop were to turn adverse; a state of theworld that has a growing possibility of materializing.

Alberto M. Ramos


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Focus: Brazil

Potential Effects and Policy Response to the European CrisisIn light of the deterioration of the financial situation in Europe, it is timely to understand how the Brazilian

authorities would respond to a new global financial crisis. Brazil is capable of dealing with financial shocksbecause the fiscal and external accounts are in reasonable shape; the domestic banking system is strong; the

stock of reserves is large; and there is ample fiscal and monetary leeway to implement countercyclical macro

policies. In addition, the economic team is experienced at crisis management. Strong external financial shocks

would shift the BoP to a deficit, weaken the BRL, reduce credit growth, and strain the banking system. This

would reduce real GDP growth, open an output gap and probably reduce inflation, opening the scope for

lowering interest rates. The Rousseff administration is likely to implement a countercyclical policy response

similar to that used in 2008. However, they are likely to be more proactive, easing macroeconomic policies

sooner, perhaps attempting more aggressive sector-oriented policies than before. We believe that the authorities

should implement ambitious structural reforms aimed at boosting total factor productivity and real GDP

growth, making the economy more resilient to global business cycles in the future.

The Effects of the European Crisis in BrazilThe deterioration of the sovereign and financial crisis inEurope begs three questions: (1) How will it affectBrazil? (2) How will the authorities respond to it? and(3) Are there any other measures that the authoritiesshould be considering?

To this end, it is useful to understand what thetransmission channels from a financial shock fromEurope to Brazil would be; how the Lehman crisis

affected the economy and how the authoritiesresponded to the crisis in 2008; and how the Rousseffadministration would respond to severe global shocks ifthe financial crisis were to worsen.

To be clear, the Goldman Sachs European EconomicTeam does not envisage a disorderly resolution of theEuropean sovereign and financial crisis. They recently

summarized their views as follows:1

we continue to

view scenarios involving a break-up of the Euro area asextreme. The significant costs incurred by thoseleaving, those remaining and other bystanders in theglobal economy render such an event highly unlikely.

Looking forward, the most likely scenario is acontinued transfer of credit risk onto public-sector balance sheets (notably that of the Eurosystem), as amechanism for avoiding disorderly default by asovereign or systemically-relevant bank(s). As we haveargued in the past, the ECBs capacity to absorb furtherassets onto its balance sheet (both directly andindirectly) remains significant. The existing situationcan therefore persist for some time. In addition, theavailability of liquidity facilities and the new swap lines

1European Economic Analyst: 11/30 Next Steps for the Euro area

A primer, by Huw Pill and Adrian Paul.

from the ECB reduce the likelihood of the reoccurrenceof a shock to short-term funding markets as weexperienced during the Lehman crisis in 2008.

Our forecasts for Brazil and Latin America areconsistent with this view about Europe. Therefore, ourmacroeconomic forecasts assume a further but milddeceleration in global real GDP growth followed by amoderate recovery from mid-2012 onward. In addition,our forecasts assume a slight increase in commodity

prices and no disruptions to emerging market financing.On the basis of this global scenario we forecast that inBrazil, real GDP growth will slow to 3.7% in 2011,recovering slightly to 3.8% in 2012.

With this in mind, in this focus piece we explore anillustrative scenario just to understand qualitativelywhat could happen to the Brazilian economy and macropolicy response if the European financial crisis and theoutlook for the global economy worsened. In thisillustrative scenario, we would have a complexcombination of contractionary real shocks (reducingglobal growth, international trade volumes, andcommodity prices below our baseline scenario) and

sizable financial shocks (raising volatility in financialmarkets, increasing risk aversion and cutting capitalinflows to emerging economies).

Transmission Channels of External Shocks to

BrazilThere are two main channels of transmission for aglobal financial to Brazil: a financial and a tradechannel, with both working through the balance ofpayments.

The financial channel would reduce net capital inflowssharply and lead to market dislocations triggered by a


10/32



sharp increase in volatility (for example, the exchangerate). The trade channel would transmit acontractionary real trade shock (lower export volumesas global growth declines) and worsen the terms oftrade, resulting from lower commodity prices if thefinancial shock reduces global growth and trade

volumes.

We believe that the strongest channel for Brazil is thefinancial channel, because net capital inflows to Brazilare large and the share of Europe in external financialflows is high. From Chart 1, we can see that FDI flowsfrom Europe to Brazil are large. Equally important butnot shown are trade and interbank lines from Europeanto Brazilian banks. From Chart 1 we conclude that inthe last two years, about two-thirds of FDI flows cameor were registered in Europe. Accordingly, in the lasttwo years, about two-thirds of the remittances of profitsand dividends went to Europe (Chart 2).

Europe64

USA13

W.Hem.ex-USA

12

Asia9

Other2(% of total)

Source: BACEN.

Chart 1: Two-thirds of Brazil FDI Inflows Comefrom Europe, 2009-10 avge

Europe, 69

USA, 17

W.Hem.ex-USA,

9

Asia, 4Other, 1

Chart 2: Accordingly Remittances of FDIProfits/dividends from Brazil Go Mostly to Europe,

2009-10 avge

(% of total)

Source: BACEN.

This means that the curtailment of trade and interbanklines could reduce hard-currency funding to local banks, thus reducing the ability of domestic privatebanks to lend. This tightens trade financing and reducesexports. In addition, as financial conditions tighten for

European parent companies, FDI inflows may declinewhile remittances of profits and dividends may rise.

Another channel of contagion would be the tighteningof financial conditions for European banks operating inBrazil. While the presence of foreign banks is

important in Brazil, systemically speaking their share inBrazil is small when compared to other countries inLatin America. Specifically, in June 2011, foreignbanks accounted for about 20.2% of the total net worth,33.4% of total loans, and 18.2% of total assets of theBrazilian banking system. The share of Europeanbanks is relatively small at 18.5%, 25.7%, and 14.1% ofnet worth, total loans, and total assets of the banking

system, respectively (Chart 3).2

Therefore, we believe

that contained problems in the banking system inEurope would not pose systemic risks for the Brazilianfinancial system.

14.1

25.7

18.5

4.1

7.7

1.7

0

5

10

15

20

25

30

35

Total Assets Loans Net Worth

European banks Other foreign banks

(% of total)

Chart 3: The Participation of Foreign and European

Banks in the Brazilian Banking System is Small

Source: Sisbacen.

Turning to international trade, Europe is an importanttrading partner of Brazil, because it accounts for 19.4%of the destination of exports and 18.5% of the origin ofimports (Chart 4). Therefore, a large hit to growth inEurope will be important for the Brazilian economy.Nonetheless, a large share of exports are commodities,which can go anywhere else, while imports are likely todecline significantly following a large global trade

shock.3

In addition, the trade balance can be

surprisingly resilient because large hits to exports areoffset by significant import cuts.

In all, when considering a global financial and realshock, we believe that the financial channel will bemore important than the trade channel.

2 The bulk of foreign bank participation is through equity investmentin Brazilian banks, with the minority of the exposure consisting ofoperations of affiliates in Brazil.3 This was an important difference for the transmission of tradeshocks in the 2008 crisis. The hit to trade in Mexico was much largerthan for Brazil, in part because the shock to manufacturing exports tothe United States was particularly severe, while the hit to commodityexports was milder.


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14.8

19.4 19.4

11.7

3.9

14.214.0

18.5

11.5 11.69.6 9.0

ARG BRA CHI COL MEX PER

Exports Imports(% Total)


Chart 4: LatAm Trade Shares w/ Euro Zone, 2005-10 avge

With these facts in mind, we explain how the shocks

could affect the Brazilian economy. On the externalfront, the combination of a strong global financial andtrade shocks would shift the balance of payments to adeficit from a large surplus currently, weakening theBRL substantially. Being a forward looking assetprice, the BRL has already weakened in anticipation ofsuch a shock.

The financial shock would reduce net capital inflows, particularly reducing trade financing, lowering theprivate sectors ability to refinance medium- and long-term debt, leading to portfolio outflows (as foreigninvestors unwind their positions in local equity and bond markets), and possibly lead of a shift of some

liquidity by multinational companies to their parentcompanies. Currently, we are already observingportfolio outflows (both fixed income and equities) anda more selective access to debt financing. The tradeshock would widen the current account deficit throughthe reduction of net exports (lower export and importvolumes combined with deterioration in the terms oftrade) and an increase in remittances of profits anddividends by multinationals.

On the domestic front, the global financial shock wouldlikely reduce the expansion of credit by private banks.A strong global shock would lower external credit linesto domestic banks and raise unemployment in Brazil,

which would likely stress smaller domestic financialintermediaries, likely requiring capitalization and some

form of official assistance.4

In the absence of any

countercyclical policy response by the government,these developments would reduce real GDP growth andcapacity utilization, increase the rate of unemployment,and lower real wages. In turn, these developmentswould open an output gap, possibly reduce IPCA

4 For a comprehensive review of the Brazilian financial system andstress tests to activity shocks, please refer to our article CreditBooms and Financial System Fragilities Demystified, in the LatinAmerica Economic Analyst, August 5, 2011.

inflation, thus creating conditions for COPOM to cutinterest rates.

Transmission of the Lehman Shock to Brazil

in 2008Although the global financial shock (or the Lehman

shock) of 2008 was one of a kind in terms of its global breadth, speed, intensity, and policy response, it is auseful reference for us to understand how large globalfinancial shocks are transmitted to Brazil and how theauthorities are likely to respond to these shocks. As wenoted earlier, the financial crisis in Europe is different, because the problems are more concentrated onsovereign issues while the availability of ECB facilitiesto deal with liquidity issues makes the short-termfunding freeze experienced in 2008 unlikely.

The Lehman shock shifted the balance of paymentsfrom large surpluses to large deficits, particularlyduring 4Q2008. The financial shock led to a suddenstop in capital inflows, shifting the capital account to acumulative deficit of US$17.2 billion in 4Q2008 from acumulative surplus of US$42.8 billion in the yearthrough August 2008. The biggest hits to the capitalaccount were felt by portfolio capital, which shifted tooutflows from inflows; the curtailment of medium- andlong-term external financing (as the rollover ratio fell toonly 22% in November from 167% in January); and thedrying up of interbank credit lines and short-term tradefinancing (leading to net outflows of US$11.4 billion).Moreover, domestic banks were squeezed becauseinterbank lines dropped 11% between August andOctober 2008, which in turn helped contract domestic

credit growth. By contrast, FDI proved to be moreresilient than other modalities of capital, slowing to anaverage of about US$2 billion per month in Januaryand February 2009 from an average of US$3.4 billion

before August (Chart 5).5

-32.1

11.5

49.6

-70.0

-50.0

-30.0

-10.0

10.0

30.0

50.0

Jan-Sep 2008 4Q08 1Q09

FDI Pro fits/dividends outflow

FDI inflow

Chart 5: FDI Inflows Slowed, Remittances ofProfits Rose During the Crisis, 4Q08-1Q09

Source: HaverAnalytics .

(% chge)

5 The figures are distorted by a large disbursement in December,raising the monthly figure to US$8 billion.


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Issue No: 11/19 September 23, 20111 0

The freezing of global liquidity and the plunge inglobal industrial production led to a sharp drop inexport and import volumes (Charts 6 and 7), as well asa cumulative drop of 13.9% in the Brazilian commodityprice index IC-Br between September and March 2009.The drop in ACC trade financing and export volumes

led to a plunge in net commercial flows in 4Q2008 toUS$1.5 billion a month from an average of US$4.8 billion in the year through September 2008. Inaddition, multinational companies accelerated theoutflows of profit and dividend remittances (Chart 5).By 1Q2009, the trade surplus was cut in half from$2.1bn in January-August 2008 to $1.0bn (Chart 8).

-40

-30

-20

-10

0

10

20

30

40

50

Jan-Sep 2008 4Q08 1Q09

Volume

Price

Value

Chart 6: Brazil Exports Declided During the Crisis,4Q08-1Q09...

(% chge)


-40

-30

-20

-10

0

10

20

30

40

50

Jan-Sep 2008 4Q08 1Q09

Volume

Price

Value

Chart 7:...And Imports Fell Sharply As Well,4Q08-1Q09

(% chge)


In all, the Lehman shock shifted the overall balance of payments to a cumulative deficit of US$23.5 billion between September 2008 and February 2009 versus acumulative surplus of the same amount in the yearthrough August 2008. In light of these externaldevelopments, and despite sizable intervention, theBRL overshot, depreciating 60.3% to R$2.50 inDecember 2008 versus R$1.56 at the end of July 2008.

2.12.0

1.0

Jan-Aug-08 Sep-Dec-08 Jan-Mar-09

Chart 8: Trade Surplus Cut in Half in 1Q2009 AfterCrisis

(US$bn, avge)

Source: Haver Analytics .

The overshooting of the BRL had three causes. The

most important was the unwinding of derivatives andstructured products through which local corporateswere massively short USD if the BRL weakened beyond R$1.70. The second was the freezing of USDliquidity, which dried up trade and interbank lines andmedium- and long-term debt financing. The first twofactors explain the surge in USD demand, particularlyin futures markets and the explosion in vol. The thirdin order of importance was the real shock, leading todeterioration in the terms of trade and a plunge inexport volumes (Charts 6 and 7). The drop in exportswas partly offset by lower oil prices and lower importvolumes (curtailed by lack of ACC trade finance). As aresult, and despite the drastic gyrations in tradevolumes and prices, the Lehman shock led to 22.1%drop in the non-oil trade surplus in 4Q2008.

On the domestic front, the Lehman shock led to a sharpreduction in financial system credit by private(including foreign) banks to the economy. In addition,the explosion of derivate structures led to severe creditproblems for large firms, which in turn became a large problem for the banking system. As activity plungedand unemployment rose, non-performing loan ratiosrose to a record high during the credit expansion cycleinitiated in 2003; as a result, an increasing number of

small intermediaries slipped into severe problems.6

In

turn, this led to a flight to quality of deposits to largefrom small intermediaries, exacerbating the funding problem for small banks. In all, this exacerbated thecontraction of non-official bank credit to the economyand stressed the domestic financial system in 4Q2008.

Foreign banks were not the main culprit for thecontraction of private bank credit observed in 4Q2008.This is mostly because as noted earlier, they do nothave a dominant presence in the overall banking system

6 The NPL ratio rose to a peak of 4.7% in October 2009 from thelows of 3.2% in September 2008. Since then the NPL ratio hasdeclined to 3.1% in June 2011.


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(Charts 3 and 9). This contrasts with the situation inMexico, where the share of foreign banks is muchlarger than in Brazil and, for this reason, the contractionof credit in Mexico was much larger than in Brazil.The other reason is that the Brazilian government wasmuch more aggressive in expanding credit through its

official banks than the Mexican authorities.

3.24

2.35

1.770.63 0.49

0

1

2

3

4

5

SPA NETH POR UK FRA

2005-10 avge

2010

(% Assets)

Chart 9: European Bank Claims on Brazil AreSmall...

Source: Haver Analytics, BIS, IMF I FS, Goldman Sachs.

In all, the Lehman shock led to a 6.1% cumulative dropin quarterly real GDP growth from 1Q2009 versus3Q2008. The main hit to growth was experienced bythe manufacturing sector, which contracted 17.1%during this period, while commerce declined 10.8%.From the demand side, private consumption declinedonly 1.0%, with the biggest hits being felt by theforeign balance and gross fixed investment. Duringthis period, the crisis led to a massive involuntaryaccumulation of stocks.

Policy Response by the Lula Administration to

the Lehman Shock

Of the major economies in Latin America, Brazil hadthe boldest and strongest policy response to the Lehmancrisis. In addition, the authorities had at their disposal apowerful arsenal of policy instruments because interestrates and reserve requirements were very high, fiscalpolicy was sound, and public banks were not expanding

credit as aggressively as they are now.The most notable feature of the authorities policyresponse in 2008 was to properly identify where werethe disruptions or problem areas in the economy anduse new instruments to address the problems. Thisapproach was the main reason why the effects of theLehman crisis in Brazil were milder and shorter thanelsewhere.

There were three main problem areas that required theauthorities attention during the crisis: (1) severedislocations in the FX market; (2) the development of

problems in the banking system; and (3) the resultingdrop in domestic demand and real GDP growth.

The problems in the FX market resulted from (1) thefact that global credit markets shut down, curtailingtrade and interbank financing and closing the access to

local firms to debt financing in international capitalmarkets; and (2) the unwinding of derivative products

that were triggered by the overshooting of the BRL.7

BACEN corrected the problems quickly.8

BACENs

strategy aimed at fulfilling the requirements of the FXmarkets where they had dried up, be it in the spot,forward, or vol market for FX. With this in mind,BACEN: (1) intervened directly in the spot FX marketby auctioning a total of US$11.1 billion of reserves; (2)auctioned a total of US$7.3 billion in trade lines; (3)auctioned US$4.7 billion of USD loans with arepurchase agreement; (4) announced a program ofUS$50 billion of USD swaps, of which BACEN sold

US$12 billion; and (5) obtained from the US FederalReserve a total line of USD swaps totaling US$30 billion. By completing the FX markets in terms oflines, spot, forwards and vols, BACEN limited theextent of the exchange rate overshooting and thedamage caused by the structured products. Thisapproach limited the strength of the contagion of theLehman crisis through the financial channel. Aninteresting lesson to apply today is that even under asizable global shock, ex-post the loss of reserves andsale of swaps was small relative to internationalreserves.

The problems in the banking system resulted from (1)the hit to banks balance sheets resulting from the FX-related losses in structured products made by their largecorporate clients; (2) the tightening of external fundingand credit availability; and (3) the flight to quality assmaller financial intermediaries lost deposits to larger banks and could not unwind their concentrated loan

portfolios.9

With this in mind, BACEN adopted a three-prongedstrategy: (1) to initially focus on the provision ofsizable liquidity to the banking system by cuttingreserve requirements and adopting unconventionalmechanisms to provide funding and liquidity to banks;

(2) facilitate the acquisition of smaller by strongerinstitutions; and at a later stage (3) shift to conventionalmonetary tools to provide liquidity by implementinglarge cuts in interest rates.

7 According to Mesquita and Tors (see reference 8 below), the totaldelta of these derivatives positions amounted to US$37 billion.8 For a comprehensive description of the policy response by theCentral Bank of Brazil see Consideraes sobre a Atuao do BancoCentral na Crise de 2008, by M. Mesquita and M. Tors, Trabalhospara Discusso No. 202, BACEN, March 2010.9 Between October 2008 and January 2009, total bank deposits grew13%, but the deposits in large banks rose 20%, while the deposits inmedium- and small-sized banks declined 11% and 23%, respectively.


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The effective reduction in reserve requirementsamounted to R$116 billion, or 4% of GDP. In addition,the authorities linked the reduction in reserverequirements to measures aimed at improving thedistribution of liquidity from the larger and strongerbanks to the smaller and weaker institutions. This was

achieved by allowing large banks to use their purchaseof loan portfolios to reduce their reserve requirements.In addition, BACEN improved the use of rediscountand it strengthened the credit insurance fund (or FGC)to increase funding for smaller institutions that reliedexcessively on time deposits.

The problems resulting from the drop in domesticdemand were addressed by using expansionary fiscal,credit, and monetary policies. On the fiscal side, thegovernment reduced the industrialized products tax(IPI) on vehicles and electronics products, which boosted industrial production. On the credit side, thegovernment injected fresh capital in its three main

official banks to allow them to boost credit to the private sector, thus partly compensating for the

retrenchment of private banks from credit markets.10

The decisions regarding interest rate policy were notstraightforward, because COPOM had to strike abalance between the need for liquidity versus the realityof rising inflation. Initially, COPOM concluded thatthe best thing to do was to provide liquidity to the banking system through quantities instead of thebenchmark interest rate. This is because at the onset ofthe Lehman crisis inflation was still rising toward theceiling of the band. Growth was strong, capacity

utilization was tight, and expected inflation was risingas investors worried that a weaker BRL would passthrough to inflation. For this reason, in SeptemberCOPOM concluded the ongoing tightening cycle byraising SELIC 75 bp to 13%.

In January, the outlook for the global economy hadcontinued to worsen and real GDP growth had plungedin Brazil in 4Q2009. This shifted COPOMs attentionto the rising risk of a recession in Brazil. For thisreason, only four months after the onset of the crisisthat COPOM slashed SELIC by 100 bp in January.This was followed by even larger rate cuts (150 bp inMarch) leading to a cumulative easing cycle of 500 bp

and a SELIC rate of 8%.11

Lessons from the Lehman ShockThe policy response by the Brazilian authorities to theLehman crisis was strong and effective, mitigating theglobal shock in the Brazilian economy. In the FXmarket, the government partly offset the drying out of

10 As a result, the share of official banks in total financial systemcredit outstanding rose to 34% in June 2009 from 28% in August2008.11 In 1Q2009, the yoy IPCA inflation rate was slowly declining,averaging 5.9%; IPCA inflation closed 2009 below the target, at4.3%.

USD liquidity for domestic firms, limiting the extent ofthe exchange rate overshooting and allowing it torecover as global conditions improved.

In the domestic credit market, monetary and credit policies provided for a much stronger expansion of

credit than in other large economies in the region. Themeasures implemented by BACEN safeguarded theintegrity of the financial system and avoided thedevelopment of a banking crisis.

In all, the policy response limited the contraction ofquarterly real GDP to only 4Q2008 and 1Q2009, withactivity rebounding strongly thereafter. As a result, thedrop in real GDP growth was capped at -0.6% in 2009.However, while the timing and choice of policyinstruments was commendable, perhaps the authoritieserred on the side of injecting too much stimulus todomestic demand and taking too long to tightenfinancial policies as global and domestic economic

activity conditions improved from 2H2009 onward. Asa result, the extended stay of the countercyclical policystrategy was responsible for the strong expansion inreal GDP growth in excess of 10% in 1Q2010 and thestrong rebound in inflation which persists until today.

Policy Response to Global Financial Shocks

by the Rousseff AdministrationWe believe that the policy response by the Rousseffadministration to global financial shocks will be similarto the crisis management approach used by the Lulaadministration. The response is likely to be quick,strong, and comprehensive, with the two main priorities

being to preserve growth and employment andsafeguard the banking system.

However, there are important differences: the Rousseffadministration is much more focused on stimulatingand protecting growth and employment, while the Lulaadministration was more intransigent about inflation.We also believe that the Rousseff administration will bemore proactive and unconventional in its choice ofpolicy instruments than the Lula administration.

For example, this means that the Rousseffadministration is likely to cut interest rates earlier,easing as soon as it perceives that the risks of acontractionary global shock increased. This is precisely

what happened on August 31, when COPOM cutSELIC by 50 bp to 12.00%.

At least in its rhetoric, the Rousseff administrationsounds more conservative about the use of fiscal policy.The official line is that as this is a global sovereign debtcrisis, the government should tighten fiscal policy todifferentiate Brazil from the advanced economies andother emerging markets, preserving market accesswithout raising sovereign bond yields. In practice, we believe that if the sovereign/financial crisis abroadintensifies, the government will ease fiscal policyaggressively to stimulate domestic demand. For


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example, when it comes down to the forecasts for GDPgrowth, the draft Budget for 2012 is much moreoptimistic than COPOM is, perhaps designing a budgetthat is inconsistent with lower growth in Brazil.

The Rousseff administration is more comfortable than

its predecessor in experimenting with new economicpolicies that are more activist and directly intervene inrelative prices/ resource allocation. For example, inorder to protect the ailing manufacturing industry, lastweek the government levied an additional import dutyon imported automobiles of 30%, reducing the tax ondomestic vehicles by 7%. We believe that we shouldexpect more measures of this type in the future.

We believe that the Rousseff administration will use theofficial banks to expand credit if private banks retrench.However, this administrations scope for action will bemore limited because the balance sheets of the official banks and of the Treasury (for funding) are more

stretched than they were in 2008.Turning to FX policies, the Rousseff administration hastwo advantages over its predecessor: there is nocomparable stock of structured or derivative productsthat could unravel as the BRL weakens; and, atUS$352.2 billion, the stock of net international reservesis 71% higher than it was in September 2008.However, today, Brazils external financing needs arehigher because the current account deficit increased andthe external debt service is rose. The latter is becausethe stock of short-term debt and medium-and long-termcorporate debt rose about 50% and 100% during thisperiod, to US$49.5 billion and almost US$195 billion,

respectively.

In all, we believe that FX policy response will besimilar: (1) BACEN is likely to auction reserves tocomplete the spot market; (2) BACEN is likely to sellUSD swaps to complete the vol market; and (3) ifneeded, BACEN could reintroduce the auction of USDliquidity for trade financing and interbank credit orsimply for external debt service for a period of less thantwo years. It is also likely that if capital inflowsevaporate and the BRL comes under severe pressure,the government may reduce the IOF tax rate on foreignfixed income investments in local markets,reduce/eliminate the IOF tax on external borrowing by

residents, and possibly postpone or even drop the plansto tax net FX positions through derivatives with theIOF tax.

The framework for the implementation of monetarypolicy could be similar but more dovish than in 2008,because COPOM is likely to cut rates faster. Currently,we forecast that COPOM will cut SELIC two moretimes by 50 bp per meeting, which is in line with theCDI curve. Just to have a general figure (this is not ourforecast), we believe that if Brazil is hit by a strongexternal shock, COPOM may cut SELIC by a total of400 bp (including the cut of 50 bp implemented in

August), reducing SELIC to 8%. In addition, eachindividual rate cut may range between 100 bp and 150 bp. What happens to inflation will depend mainly onthe outcome for growth, the output gap, and the extentof the exchange rate overshooting.

Monetary policy would also be geared to provideliquidity to banks and to safeguard the integrity of thebanking system. Therefore, we believe that COPOM islikely to: (1) cut reserve requirements; (2) allow banks purchasing distressed loan portfolios from weakerintermediaries to partly use these positions as asubstitute for reserve requirements; (3) ensure that theguarantee fund (FGC) is well capitalized and able toassist institutions that heavily rely on certificates oftime deposits to fund themselves; and (4) proactivelyseek the expeditious resolution of any liquidity orsolvency problems in the banking system.

The Rousseff administration is likely to increase

government spending or provide temporary sales tax brakes (for consumption of consumer durables orcapital goods) to stimulate domestic demand. Thismeans that during a severe crisis, the governmentwould quickly reduce its primary fiscal surplus belowthe target of about 3.1% of GDP. In addition, thegovernment is likely to encourage official banks toincrease lending if credit growth by private banksfalters. As noted earlier, we believe that the scale ofsuch programs will be smaller than those implementedduring the Lehman crisis.

What Other Measures Should the Authorities

be Considering?Up to this point, the entire discussion of this note has a passive flavor, because it focuses on how theauthorities will respond to a large global financialshock. Unfortunately, during these turbulent times wehave lost sight of the active approach: what should theauthorities be doing to bolster long term growth?

How countries respond to global challenges willdifferentiate them more vis--vis investors than thereactive focus on crisis management. This is becausethe prolonged and painful deleveraging resulting fromfinancial and sovereign crisis may keep global realGDP growth below the high averages achieved before

2008. Therefore, emerging economies will have to digdeeper to collect those extra basis points of growth thatthey are currently leaving on the table.

From simple development economics and just byobserving some of the fast-growing economies inemerging markets, it is clear that Brazil could find moresources of growth at home while the advancedeconomies conclude their adjustment process. Theauthorities can achieve this by strengthening economic policies, increasing economic efficiency, investing inhuman capital and building strong and moderninstitutions and infrastructure. In turn, this requires


16/32



ambitious fiscal and tax reforms, social securityreforms, and labor market reforms, just to quote a few.

ConclusionsOverall, we believe that the Brazilian economy is inreasonably good shape to deal with a strong mix of

contractionary financial shocks from the advancedeconomies. This is because the fiscal and externalaccounts are in reasonable shape, the domestic bankingsystem strong, the stock of international reserves islarge compared to its external financing needs, andthere is fiscal and monetary leeway to implementcountercyclical macroeconomic policies. In addition,most senior members of the economic team alreadyhave significant experience from the 2008 crisis.

We believe that the Rousseff administration will followa similar policy response used in 2008. The maindifference is that this administration is likely to be more proactive, easing macroeconomic policies sooner,

perhaps attempting more aggressive micro or sector-oriented policies than before.

Obviously, the precise macroeconomic outcome willdepend on how external unfold in coming weeks andthe exact wisdom and sequencing with which thegovernment will use its ample set of macroeconomictools.

More broadly, we believe that the long-term outlook forthe Brazilian economy is bright, but it should not betaken for granted. While the authorities have no controlover external events, they have full control over theirability to implement ambitious structural reforms aimedat boosting total factor productivity in the future. Inthis way, the government can raise sustainable realGDP growth while at the same time making theeconomy more resilient to global business cycles.

Paulo Leme


17/32



Country Views and Forecasts

Argentina

According to Indec real GDP grew 9.1% yoy during

2Q2011, moderating only slightly from the high 9.9% yoy

expansion recorded during 1Q2011. In sequential terms the

growth momentum remained high: (+2.5% QoQ sa; 10.2%

annualized) moderating from 1Q2010 (3.1% QoQ sa; 13.1%

annualized).

The economys cyclical expansion has been driven by overly

stimulated domestic demand. Investment spending grew a

high 23.8% yoy and private consumption expanded +11.5%

yoy. Net trade continues to be a drag on growth given the

ongoing ARS appreciation in real terms and admittedly

above-trend growth. Export growth decelerated sharply to

0.5% yoy during 2Q but import growth remained very highat +24.9% yoy. Hence, the contribution of net exports to

growth deepened to -3.1 percentage points of GDP.

The economy was exceptionally dynamic in yoy and

sequential terms during 1H2011 on the back of very

significant fiscal and monetary stimulus, solid external

demand and very favorable terms of trade. Furthermore,

fiscal and monetary policy remained highly stimulative so

far during 3Q2011 given the approaching pivotal October

presidential elections.

8.57.8

6.9

4.1

2.0

-0.8-0.3

2.6

6.8

11.8

8.69.2

9.99.1

-2

0

2

4

6

8

10

12

14

1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11

(% yoy; n.s.a.)

Solid Real GDP Growth


2009 2010 2011F 2012F Q1 Q2 Q3 Q4 Q1 Q2 Q3F Q4FActivity and Prices

Real GDP Grow th (%yoy) 0.9 9.2 8.9 3.5 6.8 11.8 8.6 9.2 9.9 9.1 9.7 6.9

Nominal GDP (US$bn) 307 368 446 464 79 97 93 99 98 122 112 115

Consumer Prices (yoy, e.o.p.) * 7.7 10.9 9.8 13.2 9.7 11.0 11.1 10.9 9.7 9.7 9.6 9.8

External Sector

Current Account (%GDP) 3.6 0.8 -0.3 0.5 -0.6 3.3 0.9 -0.5 -0.7 1.5 -0.4 -1.9

Trade Balance (%GDP) 6.0 3.9 2.5 3.2 3.1 6.2 4.0 2.1 2.5 4.1 2.6 0.7

Exports (%yoy) -20.5 22.4 18.1 5.2 9.4 23.3 35.6 19.5 31.1 20.2 15.0 9.2

Imports (%yoy) -32.0 45.0 28.6 0.7 32.7 50.5 49.3 45.7 38.6 37.3 23.5 19.0

Exchange Rate ($/ARS, e.o.p.) 3.80 3.97 4.35 5.10 3.87 3.93 3.96 3.97 4.06 4.11 4.25 4.35

Gross International Reserves (US$bn) 48.0 52.2 48.0 49.0 47.5 49.2 51.1 52.2 51.3 51.7 49.6 48.0

Monetary Sector

Monetary Base (%yoy) 11.5 31.6 28.0 21.0 18.6 22.3 29.7 31.6 36.8 39.6 33.0 28.0

Credit to the Private Sector (%GDP) 13.5 14.6 14.8 15.4 13.3 13.5 13.9 14.6 14.7 15.2 14.3 14.8

30-Day CD Rate (e.o.p.) 9.53 9.63 9.80 9.00 9.11 9.00 9.27 9.63 9.48 9.65 9.60 9.80

Fiscal Sector

Federal Govt Primary Balance (%GDP) 1.5 1.8 1.3 1.8 1.4 1.7 2.2 1.7 1.7 1.5 1.4 1.3

Federal Govt Overall Balance (%GDP) -0.6 0.2 -0.5 -0.3 -0.8 -0.4 0.2 0.2 0.2 0.0 0.0 -0.5

Debt Indicators

Gross Non-f in. Public Sector Debt (%GDP) 57.9 47.7 40.7 41.0 57.3 52.2 49.3 47.7 47.7 43.7 41.8 40.7

Domestic (% GDP) 30.2 28.0 22.0 22.1 30.8 29.0 28.2 28.0 28.7 20.4 15.7 22.0

External (%GDP) 27.8 19.7 18.7 18.9 26.5 23.2 21.2 19.7 19.0 23.3 26.1 18.7

Total External Debt (%GDP) 47.9 38.0 34.0 33.7 46.5 41.7 39.6 38.0 36.7 36.3 35.0 34.0

2010 2011

* Official inflation index.


18/32



Brazil

On September 29, FGV will report IGP-M inflation for

September. We forecast an increase to 0.65% (mom)

from 0.44% in August. On a yoy basis, this implies that

IGP-M will decline to 7.47% from 8.00%.

On the week of October 3, the National Confederation of

Industries will report the capacity utilization index

(NUCI-CNI) for August. We forecast that the NUCI-CNI

declined further to 81.9% (nsa) from 82.1% in July.

On October 4, IBGE will report industrial production for

August. We forecast that IP contracted 0.25% (mom,

seasonally adjusted) in August from +0.50% in July. In a

yoy basis, this translates into a 1.77% increase from

-0.3% in July.

On October 7, IBGE will report IPCA inflation for

September. We forecast that IPCA inflation rose to

0.55% in September from 0.37% in August. On a yoy

basis, this translates into an increase to 7.33% from

7.23% in August.

7.3

0

1

2

3

4

5

6

7

89

04 05 06 07 08 09 10

IPCA

(% yoy; eop)

Source: IBGE; BACEN. Goldman Sachs forecasts.

IPCA Inflation (yoy) Likely Peaked in September

2009 2010 2011F 2012F Q1 Q2 Q3 Q4 Q1 Q2 Q3F Q4F

Activity and Prices

Real GDP Grow th (%yoy) -0.6 7.5 3.7 3.8 9.3 9.2 6.7 5.0 4.2 3.1 3.5 3.9Nominal GDP (US$bn) 1625 2099 2567 2635 468 503 545 587 566 644 666 693

Consumer Prices (yoy, e.o.p.) 4.3 5.9 6.6 5.6 5.2 4.8 4.7 5.9 6.3 6.7 7.3 6.6

External Sector

Current Account (%GDP) -1.5 -2.3 -2.2 -2.5 -2.6 -2.4 -2.1 -2.0 -2.6 -1.7 -2.5 -2.2


Exports (%yoy) -22.7 32.0 28.0 16.5 25.8 28.8 33.2 38.3 30.6 34.2 29.2 19.5

Imports (%yoy) -26.2 42.3 30.4 15.6 36.0 54.2 47.3 33.4 25.4 33.3 33.5 28.7

Exchange Rate ($/BRL, e.o.p.) 1.74 1.67 1.62 1.78 1.78 1.80 1.69 1.67 1.63 1.56 1.60 1.62


Monetary Sector


Credit to the Private Sector (%GDP) 42.6 44.6 45.6 46.3 42.2 42.7 43.5 44.6 44.6 45.3 45.0 45.6

Selic Rate (e.o.p.) 8.75 10.75 11.00 11.00 8.75 10.25 10.75 10.75 11.75 12.25 12.00 11.00

Fiscal Sector

Public Sector Primary Balance (%GDP) 2.0 2.8 2.6 2.7 2.0 2.1 2.9 2.8 3.2 3.5 2.5 2.6

Public Sector Overall Balance (%GDP) -3.3 -2.6 -3.0 -2.9 -3.4 -3.3 -2.3 -2.6 -2.3 -2.2 -3.0 -3.0

Debt Indicators

Net Public Sector Debt (%GDP) 42.8 40.2 39.8 39.0 42.0 41.1 40.3 40.2 39.9 39.7 39.6 39.8

Net Domestic (% GDP) 52.0 50.0 49.8 49.2 51.4 50.5 50.0 50.0 50.5 50.4 49.5 49.8

Net External (%GDP) -9.2 -9.8 -10.0 -10.2 -9.5 -9.7 -9.7 -9.8 -10.6 -10.8 -9.9 -10.0

Total External Debt (%GDP) 10.1 11.3 11.3 11.8 10.9 11.3 11.6 11.3 11.7 11.9 11.6 11.3

20112010


19/32



Chile

The inflation picture remains benign. The main drivers of

inflation during January-August were energy (+10.6%) and

fuels (+12.8%). Furthermore, food prices rose by 3.5%

during January-August 2011 and are up 6.0% yoy. Hence,

ex-food and energy consumer prices are running at a very

mild 1.2% yoy. Finally, core inflation pressures also remain

well contained: IPCX1 is running at a low and below-target

1.5% yoy. Services inflation is running at an above-target

4.6% but that has been to some extent partially compensated

by the low 2.0% yoy increase in goods prices (tradable

goods inflation has been anchored by a strong CLP).

The constructive inflation picture amidst still solid real

sector dynamics should encourage the central bank to remain

on hold at a broadly neutral 5.25% over the next few months

and to continue to intensely monitor the evolution of theglobal backdrop.

We expect the MPC to act flexibly going forward and to

only entertain the possibility of adding monetary stimulus to

the economy if the external impulse to growth weakens very

significantly, leading domestic activity to downshift to a

clearly below-trend pace (under 4.5%).

-3

0

3

6

9

Jan -07 Oc t-07 J ul -08 Apr-09 J an -10 Oct-10 J ul -11

CPI

CPI Core

Inflation Target

(%yoy)

Source: Central Bank of Chile and Goldman Sachs.

Core Inflation Still Below the 3.0% IT

Source: Central Bank of Chile and Goldman Sachs.

2009 2010 2011F 2012F Q1 Q2 Q3 Q4 Q1 Q2 Q3F Q4F

Activity and Prices

Real GDP Grow th (%yoy) -1.7 5.2 6.6 5.4 1.7 6.4 6.9 5.8 10.0 6.8 4.7 5.2

Nominal GDP (US$bn) 161 203 245 267 46 49 51 57 56 62 62 65Consumer Prices (yoy, e.o.p.) -1.5 3.0 3.3 3.0 0.3 1.2 1.9 3.0 3.4 3.4 2.9 3.3

External Sector

Current Account (%GDP) 1.6 1.9 -1.0 -1.9 4.6 1.1 -0.1 2.1 0.3 0.0 -1.6 -2.4


Exports (%yoy) -18.5 31.5 17.7 4.5 42.7 27.1 30.8 27.6 21.0 30.6 15.0 7.0

Imports (%yoy) -30.9 38.3 28.3 10.1 31.6 47.3 43.9 31.6 35.0 31.1 25.0 24.0

Exchange Rate ($/CLP, e.o.p.) 501 475 460 480 523 537 494 475 480 469 460 460


Monetary Sector

Monetary Base (%yoy) -1.4 11.2 14.0 12.0 4.2 6.4 5.4 11.2 11.0 16.8 13.6 14.0

Credit to the Private Sector (%GDP) 70.2 65.8 66.7 70.0

Interest Rate 90 Day PDBC (%) 0.48 3.40 5.50 5.50 0.50 1.44 2.99 3.40 4.26 5.55 5.35 5.50

Fiscal Sector

Public Sector Primary Balance (%GDP) -3.9 0.1 3.4 2.7

Public Sector Overall Balance (%GDP) -4.4 -0.4 2.8 2.0

Debt Indicators

Central Govt Debt (%GDP) 6.1 7.4 7.3 7.2

Domestic (% GDP) 1.6 1.3 1.2 1.2

External (%GDP) 5.3 6.1 6.1 6.0

Total External Debt (%GDP) 45.3 42.3 37.1 35.9

20112010


20/32



Colombia

The central bank bought US$440 million from the market in

August. During January-August the central bank bought

US$3.3 billion from the market. Although the central bank

FX intervention program entails the purchase of at least

US$20 million/day, so far the central bank has bought only

the minimum amount consistent with the program.

Despite the buoyancy of imports, the trade balance posted a

US$546 million surplus in July (up from a US$83 million

deficit a year ago) as exports posted an even stronger

performance anchored in high commodity prices and solid

crude oil export volume growth. Year to date the trade

balance posted a US$2.75 billion surplus, up from US$1.90

billion during the same period in 2010. The mining sector

trade surplus rose to US$17.1 billion during January-July

2011 from US$10.6 billion during January-July 2010, morethan offsetting the observed deterioration of the industrial

sector deficit to US$14.5 billion from US$9.0 billion during

January-July 2010.

Well-anchored medium-term inflation expectations,

particularly at the core level, are a major source of comfort

to the central bank, particularly when there is still no

evidence of clear demand-pull pressures on inflation. After

all, core inflation is still running below the 3.0% inflation

target midpoint.

1

2

3

4

5

6

78

Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11

Headli ne; yoy

Core; yoy

(%)

Well Anchored Headline and Core Inflation

Source: Banco de la Repblica and Goldman Sachs.

2009 2010 2011F 2012F Q1 Q2 Q3 Q4 Q1 Q2 Q3F Q4F

Activity and Prices


Nominal GDP (US$bn) 238 289 328 345 68 70 74 76 78 83 83 85


External Sector

Current Account (%GDP) -2.2 -3.1 -2.4 -2.5 -1.9 -2.1 -4.7 -3.7 -2.5 -2.3 -2.4 -2.6

Trade Balance (%GDP) 1.1 0.7 1.3 1.2 1.6 1.8 -0.5 0.3 1.5 1.4 1.4 1.1

Exports (%yoy) -15.5 21.5 28.5 9.5 20.3 10.7 14.7 19.6 35.0 26.3 30.5 21.4

Imports (%yoy) -18.8 22.9 24.3 11.0 9.2 8.7 28.0 28.7 38.9 30.6 14.5 15.5

Exchange Rate ($/COP, e.o.p.) 2044 1914 1750 1900 1929 1916 1800 1914 1879 1780 1800 1750


Monetary Sector


Credit to the Private Sector (%GDP) 25.8 27.5 28.6 29.7

Interest Rate (e.o.p.) 4.12 3.50 4.55 4.50 3.99 3.70 3.50 3.46 3.51 3.91 4.55 4.55

Fiscal Sector

Public Sector Primary Balance (%GDP) 0.7 -0.9 -0.1 1.0

Public Sector Overall Balance (%GDP) -2.8 -3.5 -3.5 -2.5

Debt Indicators

Gross Non-f in. Public Sector Debt (%GDP) 42.8 43.0 44.0 43.2

Domestic (% GDP) 28.3 30.0 31.2 30.6

External (%GDP) 14.4 13.0 12.8 12.6

Total External Debt (%GDP) 23.0 22.4 21.0 21.1

2010 2011


21/32



Dominican Republic

The IMF concluded a two-week mission in the context of its

seventh review of the Stand-By Arrangement. In a press

release, the IMF said that the development of the program

remains broadly satisfactory. However, the IMF pointed to

delays in the implementation of structural reforms, and said

that the country has missed two performance criteria for end-

June 2011. These were the target on the transfers to the

electricity sector and the target on the consolidated fiscal

deficit. This will require further adjustment but, in the view

of the IMF, the fiscal measures adopted by the government

makes it feasible to reach the fiscal objectives for year-end

(i.e., consolidated public sector of 3% of GDP).

The IMF lowered its growth forecast for 2011 to 4%-5%

(from 5%-5.5% previously) due to the deterioration of the

external backdrop. In addition, the IMF said that whileinflation is running high (10% yoy), this is due to the effect

of higher commodity prices that are likely to wane.

We expect the program to remain on track, although this

may require the IMF granting waivers for the missed targets,

and the government implementing further adjustments. This

would enable the disbursement the remaining US$500

million budgeted in the program.

0

2

4

6

8

10

12

06 07 08 09 10 11F 12F

(%, yoy )

Still Constructive Short Term Outlook for Growth

Source: Goldman Sachs; Haver Analytics.

Real GDP growth

2009 2010 2011F 2012F Q1 Q2 Q3 Q4 Q1 Q2 Q3F Q4F

Activity and Prices

Nominal GDP, US$ bn 46.8 51.8 54.3 58.6 11.9 12.7 12.4 14.7 12.9 13.6 13.4 15.6

Real GDP, % yoy 3.5 7.8 4.2 5.2 7.5 7.5 7.7 8.3 4.3 3.7 4.5 4.4CPI Inf lation, % yoy (e.o.p.) 5.8 6.2 9.4 5.9 7.4 5.4 5.7 6.2 7.6 9.3 9.9 9.4

External Sector

Current account balance, % of GDP -5.0 -8.6 -9.0 -6.3 - - - - - - - -

Trade balance, % of GDP -8.0 -11.7 -12.6 -10.0 -7.3 -13.6 -13.5 -12.2 -10.8 - - -

Exports of g & s, % yoy -7.4 11.6 7.6 12.1 8.7 5.7 15.5 16.5 6.3 8.0 8.0 8.0

Imports of g & s, % yoy -9.8 14.4 8.6 13.1 13.5 11.8 20.6 12.0 8.4 10.0 8.0 8.0

Gross international reserves, US$ bn 3.3 3.8 3.4 3.2 2.7 3.0 2.7 3.8 3.0 2.9 3.2 3.4

Nominal exchange rate (e.o.p.) 36.2 37.5 39.0 41.0 36.5 36.9 37.3 37.5 37.9 38.0 38.5 39.0

Mone tary Sector

Monetary base, % yoy 16.1 8.1 - - 20.0 19.5 17.4 8.1 2.2 1.5 - -

Credit to the private sector, % of GDP 20.6 22.0 21.0 20.0 20.7 20.9 21.3 22.0 21.8 21.7 - -

Monetary policy rate, % 4.00 5.00 6.75 6.75 4.00 4.00 4.00 5.00 6.00 6.75 6.75 6.75

Fiscal Sector

Primary balance, % of GDP -1.6 -0.6 0.8 0.5 - - - - - - - -

Overall balance, % of GDP -3.5 -2.5 -1.6 -2.0 - - - - - - - -

Debt Indicators

Total gross public sector debt, % GDP 28.3 28.6 31.4 34.8 - - - - - - - -

Domestic 10.8 9.4 11.4 13.8 - - - - - - - -

External 17.6 19.2 20.0 21.0 - - - - - - - -

Source: Haver Analytics; National Sources; Goldman Sachs.

2010 2011


22/32



Ecuador

According to INEC, inflation in August increased 0.49%

mom (4.84% yoy), up from 0.18% mom (4.44% yoy ) in

July. The August 2011 inflation print is also significantly

higher than the July 2010 print (0.11% mom; 3.82% yoy).

The main contributor to inflation in July was food and

beverages (0.67% mom; 7.28% yoy), followed by goods and

services (1.11% mom; 4.79% yoy), and furniture (0.74%

mom; 6.01% yoy). Moreover, the contribution from tradable

goods (2.76% yoy) was larger than non-tradable goods

(1.68% yoy).

Inflationary pressures are rising amid higher imported

inflation and more significant pressures from domestic

factors. While the overall inflation remains moderate, the

fact that it is on an ascending path poses a challenge to

authorities because in a dollarized economy there is verylittle that authorities can do to counter the pressures.

Against this background, authorities could be tempted to

increase subsidies to consumers in order to counter the

consequences of inflation. However, this would possibly

lead to a further deterioration of the already-challenging

fiscal outlook.

-0.5

2.0

4.5

7.0

-0.5

0.0

0.5

1.0

1.5

Jun-09Oct-09Feb-10Jun-10Oct-10Feb-11Jun-11

MoM YoY (rhs)

(%mom) (%yoy)

Headline CPI Inflation at 4.84 YoY

Source: INEC and Goldman Sachs.

2009 2010 2011F 2012F Q1 Q2 Q3 Q4 Q1 Q2 Q3F Q4F

Activity and Prices


Nominal GDP (US$bn) 52.0 58.1 62.9 67.4 13.9 14.2 14.6 15.5 15.6 15.2 15.7 16.6


External Sector

Current Account (%GDP) -0.2 -3.1 -3.3 -3.6 1.1 -2.8 -6.4 -4.0 1.3 -2.7 -7.7 -3.9

Trade Balance (%GDP) 0.3 -2.6 -2.7 -2.9 1.3 -1.8 -6.5 -3.0 1.3 -2.0 -7.0 -3.3

Exports (%yoy) -26.0 25.9 17.1 15.0 53.8 33.0 8.2 18.0 23.8 15.1 15.0 15.0

Imports (%yoy) -20.3 37.6 16.9 15.0 19.8 47.1 47.6 36.1 24.1 15.1 15.1 15.0

Exchange Rate (1000 $/ECS, e.o.p.) 25.0 25.0 25.0 25.0 25.0 25.0

Documents

Goldman on Brazil