Transcript Lessons from the Crisis - INCT/PPED

Lessons from the Crisis:
The Experience of the Brazilian Development Bank
Ernani Teixeira Torres Filho
UFRJ - BRAZIL
New Economic Thinking, Teaching and Policy Perspectives –
A Brazilian Perspective within a Global Dialogue
November 8, 2011
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Pânico Financeiro provocou uma recessão
Panicforte
of 2008 was a rare and unexpected event
global
fenômenos raro fora de guerras
Source: J.P. Morgan
Crisis is a result of three different shocks
Structural Shock 1st Degree
 Explosion of the Housing
Bubble
 Deleveraging of Financial and
Family Sector
Structural Shock 2nd Degree
 Sovereign debt and Banks
US
Developed Europe
Other Emerging
Economies
Cyclical Shocks
 Financial Liquidity, confidence
Europe - GIIPS
First time Brazil confronted a major international crisis as
a net external creditor
Foreign indicators (% of GDP)
Total foreign debt
International Reserves
Current Account Transactions
4,8
18,1
31,5
-6,8
5,3
2,6
1,5
42,9
26,5
-6,0
12,9 14,4
-0,5
-2,4
-4,0
1974
1982
1st oil crisis
Volcker shock
Source: Brazilian Central Bank and Ministry of Finance.
1987
Foreign Debt
moratoriam
1998
2010*
Asian Crisis
4
Panic of 2008
Oct. 10
4
Brazilian Fiscal Deficit is quite low on a cross country
basis
Fiscal Deficit in % of GDP
-14
-12
-10
-8
-6
2008
-4
2009
-2
2010
0
2
4
6
5
Source: IMF
Brazil economy was hit much harder than
expected
Brazil: GDP Growth Rate (%, Q-Q-40)
11
GDP
9,3
9
7,0
7
6,4
5
3,1
3
1
0,8
-1
-3
GDP
-2,9
-5
6
Source: IBGE
Source: BCB
6
Investors confidence collapsed
Brazil: Companies Confidence Index
70
68,7
68
66
64
65,2
62
60
Fonte: APE/BNDES
58
56
54
52
53,1
50
1T
2T
3T
4T
1T
2T
3T
4T
1T
2T
3T
4T
2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009
Source: CNI
Investment downturn was rapidly reversed by
interest rate subsidies
Brazil: GDP and GFCF Growth Rate (%, Q-Q-40)
30
28,7
25
Growth Rate and GFCF (Q/Q-4)
20
18,9
15
14,5
9,3
10
7,0
6,4
6,1
3,1
5
0,8
0
-2,9
-5
-7,3
-10
GDP
-15
GFCF
-16,9
-20
8
Source: IBGE
Source: BCB
8
Downturn on Exports hit industrial production
much harder than expected
Participation of Exports on Downturn of Manuacturing Sector (In%)
63,1
52,4
52,8
25,9
21,1
Fonte: APE/BNDES
20,6
Indirect
26,2
Direct
9,4
Total
31,3
32,2
1T 2009
2T 2009
37,2
16,8
4T 2008
Source: BNDES
3T 2009
… but families went on consuming as employment
and wages were not affected by the crisis
Rate of Growth of Consumption of Families (Q-Q4) in %
8,4
9,0
7,7
8,0
7,1
7,0
6,0
4,8
4,6
5,0
5,4 5,3 5,2
5,3
6,2 6,0
5,0
6,6
6,0
5,6
7,2
6,5
6,4
4,3
4,3
3,5
4,0
2,8
3,0
5,9
2,6
3,0
2,1
2,0
1,0
0,7
Source: IBGE.
3T2010
2T2010
1T2010
4T2009
3T2009
2T2009
1T2009
4T2008
3T2008
2T2008
1T2008
4T2007
3T2007
2T2007
1T2007
4T2006
3T2006
2T2006
1T2006
4T2005
3T2005
2T2005
1T2005
4T2004
3T2004
2T2004
1T2004
0,0
Exchange rate devalued by more than 50%
Exchange Rate: R$ to USD
(monthly average)
2,5
2,4
2,38
2,30
2,3
2,2
2,1
2
1,9
1,8
1,7
jul/09
abr/09
jan/09
out/08
jul/08
abr/08
jan/08
out/07
jul/07
abr/07
jan/07
out/06
jul/06
abr/06
jan/06
1,5
Source: BCB
1,74
1,57
out/09
1,6
Impacts of the exchange rate devaluation
 Devaluation had limited impact on prices: inflation
came from 6,4% a year to 4,2 % …
 … but 200 hundred large companies were distressed
by derivative operations (target forward) : more than
US$ 30 billion losses
 60 to 70 of them were hardly hit: Aracruz case
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Aracruz case: the world’s leading market pulp producer
 Market Capitalization: US$ 7.1 Billion ( July 8th, 2008)
More than US$ 2 billion losses
Aracruz Foreign Currency Liabilities, Assets and Derivatives Short
position (US$ million) – 1999-2008
Source: Rodrigo Zeidan and Bruno Rodrigues, The Failure of Risk Management for Non-Financial Companies in the Context of the Financial Crisis: Lessons from Aracruz Celulose and
Hedging with Derivatives, 2011
Brazilian real interest rates are among the world’s highest
Central Bank Basic Rate (Selic) and Inflation
(monthly average % annualised)
16
14
13,25
13,75
12
10
8,75
11,25
8
6,4
6
4
4,8
3,0
4,2
2
0
Selic Rate
Source: BCB
10,25
Inflation Rate
Private Banks froze their loans for almost a year
after the crisis
Total Loans to GDP (%) - Private Banks
Source: BCB
26,3
26
set/09
mai/09
jan/09
set/08
mai/08
jan/08
set/07
mai/07
jan/07
set/06
mai/06
17,8
jan/06
27
26
25
24
23
22
21
20
19
18
17
Total Period of Bank Loans had increased by 80% while
deposits were – and still are - mostly on demand
Average maturity of Bank loans (in days)
600
492
500
400
300
277
200
100
172
308
Companies
Families
jan/04
mai/04
set/04
jan/05
mai/05
set/05
jan/06
mai/06
set/06
jan/07
mai/07
set/07
jan/08
mai/08
set/08
jan/09
mai/09
set/09
0
Source: BCB
Iniatives by the Central Bank
 Cut Selic Rate from January 2009 on
Liquidity injection in local currency: R$ 170 billion
 Liquidity injection in foreign currency: US$ 70 billion
17 17
The impact on the diminishing trend of the debt
was null
Public Debt to GDP (%)
64,04
65
59,73
60
55
50
45
55,9
57,11
55,86
54,74
46,7
43,6
43,5
37,2
40
37,8
jan/07
abr/07
jul/07
out/07
jan/08
abr/08
jul/08
out/08
jan/09
abr/09
jul/09
out/09
jan/10
abr/10
jul/10
out/10
jan/11
abr/11
jul/11
35
Net Public Debt to GDP (%)
Source:
Brazilian Central Bank and Ministry of Finance.
Fonte:
BCB
Gross Public Debt to GDP (%)
BNDES Role during the crisis
 Supply long term funds for investment projects,
particularly those already started
Coordinate actions along with private banks to support
financially distressed companies
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Lessons from the crisis
 Brazil went through two decades of economic crisis
(1984-2004): low growth, high volatility, hyperinflation
etc
Learning by doing: inflation curbed (1994), primary
surplus (1999), net foreign creditor (2004)
Advanced regulatory system, based on laws and
regulations as well as financial contracts, shareholders
agreements and cooperative experiences .
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Lessons from the crisis
 The most important lesson from the crisis is to act as fast as
you can: stop the downward cycle and keep confidence among
private banks and companies
Crisis management institutions have to be already in place: it
takes too long to build them up
Central banks and fiscal authorities have a very important role
but they have limits
State owned banks, particularly, development banks are
institutions that can act as micro-regulators to help to stabilize the
market on a micro level
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Lessons from the Crisis:
The Experience of the Brazilian Development Bank
Ernani Teixeira Torres Filho
UFRJ - BRAZIL
New Economic Thinking, Teaching and Policy Perspectives –
A Brazilian Perspective within a Global Dialogue
Rio de Janeiro/Brazil November 7-9, 2011
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