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Economic crisis dampens Brazilian growth
2008-11-09
RIO DE JANEIRO -- For the past two years, rainy Saturdays meant a steady stream of customers to a Renault auto dealership in this seaside city. Rio residents eschewed the beach to open up their wallets during the good economic times. Muzi.com News 10082737-0 (muzi.com) But last Saturday, the eight Renault salesmen were as lonely as the proverbial Maytag repairman. Muzi.com News 10082737-1 (muzi.com) "People are afraid to buy," said salesman Robson Coriolano, taking a break from watching a car race on television. "Nobody knows how long the crisis will go on." Muzi.com News 10082737-2 (muzi.com) The financial implosion that began in the United States has spread to Brazil , ending a three-year economic boom for the world's 10th largest economy. Amid the boom, millions of Brazilians joined the middle class and began to enjoy the fruits of American-style consumerism. Muzi.com News 10082737-3 (muzi.com) Those heady times have all but disappeared. Muzi.com News 10082737-4 (muzi.com) Sales of cars, new apartments and home appliances plummeted in October, as did exports. Interest rates have surged, and credit has dried up for some industries. Soybean plantings have fallen, the stock market has tanked and value of Brazil's currency, the real, has sunk 25 percent compared to the dollar. Analysts now expect economic growth for 2009 to drop 40 percent below original projections. Muzi.com News 10082737-5 (muzi.com) Ordinary Brazilians suddenly find themselves pondering an uncertain future. Muzi.com News 10082737-6 (muzi.com) "Everyone is worried," said Kelly Almeida , a nutritionist who decided she couldn't afford a new living room couch. "We don't know how bad we'll be hit." Muzi.com News 10082737-7 (muzi.com) As recently as two months ago, record foreign reserves, low inflation, solid growth and a healthy budget surplus prompted Brazilian President Luiz Inacio Lula da Silva to say that the financial crisis would bypass his country. Muzi.com News 10082737-8 (muzi.com) "The press is always asking me about the American crisis," Lula said. "I say: Ask Bush. It is his crisis, not mine." Muzi.com News 10082737-9 (muzi.com) Now, it's not only Lula's crisis but Marcelo Vasconcelos' as well. Muzi.com News 10082737-10 (muzi.com) Vasconcelos is selling 1,200 new apartments in a development known as Reserve Park . In a fast-growing Rio neighborhood five miles inland from the coast, the project features swimming pools, tennis courts and volleyball courts, as well as two- and three-bedroom units costing $150,000 to $200,000 . The target audience: first-time homebuyers, who have entered the market in droves over the past two years with easier access to borrowed money. Muzi.com News 10082737-11 (muzi.com) Two months ago, Vasconcelos predicted he'd sell 500 units in the first week. He has now lowered his sights to 200 or 300. Muzi.com News 10082737-12 (muzi.com) "People are afraid of taking on debt," Vasconcelos said, as he sat in the showroom lobby for Reserve Park . "Many people are talking about the crisis, and the crisis has only begun. I'm afraid that people will panic, and the crisis will worsen." Muzi.com News 10082737-13 (muzi.com) For now, economists say that Brazil's economy is not saddled with toxic real estate loans and remains fundamentally strong. Instead of Brazil growing at 5 percent in 2009, they now project growth of about 3 percent. Muzi.com News 10082737-14 (muzi.com) "I don't think it will be a major crisis for Brazil ," said Regis Bonelli , an economist at Rio's Getulio Vargas Foundation . " Brazil's economy is in much better shape than before." Muzi.com News 10082737-15 (muzi.com) Brazil has lurched from economic crisis to economic crisis over the past 25 years. Hyperinflation racked the country in the 1980s and early 1990s. Economic woes in other developing countries slammed Brazil later in the 1990s. Muzi.com News 10082737-16 (muzi.com) The economy has strengthened under Lula, a Socialist and one-time union leader who didn't graduate from high school. Ironically, the business community feared Lula when he took office in 2003. Muzi.com News 10082737-17 (muzi.com) Instead, Lula has mostly continued the pro-business policies of his predecessor, Fernando Henrique Cardoso . Muzi.com News 10082737-18 (muzi.com) Under Lula, Brazil has favored private investment, promoted Brazilian products abroad and liberalized lending rules to make it easier for the lower-middle class to borrow money to buy apartments, cars and refrigerators. Petrobras, the state oil company, dramatically expanded its reserves and profits. Muzi.com News 10082737-19 (muzi.com) Today, Brazil boasts $200 billion in foreign reserves -- or nearly half the amount held by Latin American nations. Muzi.com News 10082737-20 (muzi.com) In the face of the crisis, Lula has promised to continue government public works projects. His government has approved rules to encourage banks to lend more money and on Thursday announced it will loan $1.9 billion to carmakers' financial subsidiaries to help boost sales in November and December. Muzi.com News 10082737-21 (muzi.com) Business leaders and ordinary Brazilians have praised the government. Muzi.com News 10082737-22 (muzi.com) It's not clear yet, though, whether these moves will prompt middle-class Brazilians to keep spending. Muzi.com News 10082737-23 (muzi.com) What is clear is that the economy needs help. Muzi.com News 10082737-24 (muzi.com) General Motors is idling two of its three Sao Paulo automobile manufacturing plants and partially halting production at the third one, a company spokesman said. Muzi.com News 10082737-25 (muzi.com) Sales at the Renault dealership in Rio plunged from 354 vehicles in September to 130 in October. Muzi.com News 10082737-26 (muzi.com) "If this continues, we'll have to lay off people," said sales manager Marcos Paulo Pinto . Muzi.com News 10082737-27 (muzi.com) One of the few customers on Saturday was Jose Luiz Natal , a 39-year-old dentist looking at a 2006 Ford EcoSport. Muzi.com News 10082737-28 (muzi.com) "My biggest concern is getting a good interest rate," Natal said, as he examined the SUV. "I'm afraid of what will happen in the future." Muzi.com News 10082737-29 (muzi.com) Buyers of yellow taxi cabs from Shopping do Taxi in Rio now have to pay three times as much to finance the purchases as they did in September. They also face a more rigorous credit-worthy standard. Muzi.com News 10082737-30 (muzi.com) "Business was marvelous," said general manager Marco Thomaz . "But now I'm worried. Everybody in the automobile industry is worried." Muzi.com News 10082737-31 (muzi.com) Casas Bahia, a consumer chain that helped spark a consumption binge on home appliances and furnishings by offering favorable credit terms, has suddenly become less appealing. Muzi.com News 10082737-32 (muzi.com) Maria dos Santos, a 57-year-old cleaning lady, was hoping to buy a refrigerator at Casas Bahia at a Rio mall on Sunday. But the refrigerator now costs 25 percent more than it did 15 months ago if dos Santos finances the purchase. Muzi.com News 10082737-33 (muzi.com) "Everyday it's harder to buy things," she said. Muzi.com News 10082737-34 (muzi.com) Plywood exports for Bruno Stern's company have plunged 40 percent this year. Muzi.com News 10082737-35 (muzi.com) "U.S. and European construction markets are in such a slowdown that sales have dried up," Stern said. Muzi.com News 10082737-36 (muzi.com) Brazilian exports overall had been growing at a 30 percent clip for 2008 before they flattened in October. Muzi.com News 10082737-37 (muzi.com) Jorge Augusto de Castro , vice president of Brazil's Foreign Trade Association , expects exports to fall by 5 percent in November compared to October. Muzi.com News 10082737-38 (muzi.com) "The biggest problem is the lack of credit," said de Castro. "The government is trying to free up credit for exporters." Muzi.com News 10082737-39 (muzi.com)
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