Credit crunch Europe’s lessons for Brazil

Reporting from the European Bank for Reconstruction and Development, I am struck by how vulnerable Central and Eastern Europe is to a credit meltdown as western European banks ‘deleverage’ and retreat home, very much the issue of the day.
Anaemic consumer growth is being foisted on the region as banks withdraw to their home markets. A series of attempts to stem that retreat, such as Vienna 2.0, are incipient but it’s tough to get agreement between home and host countries.

The experience in Central Europe underscored just what a big role credit and debt have played in growth and the suspicion they now generate. Thoughtful Marek Belka, the Central Bank governor for Poland, declared debt as the key ingredient in economic models is defunct: “The previous model of debt-driven growth is a matter of the past. That is, in my opinion, is the most challenging task we are facing.”

That made me think of Brazil and its ongoing experience pushing credit as a counter-cyclical weapon. While I applaud the government for getting tough with private banks, which enjoy peddling usurious rates, you do have to wonder if stimulating credit is a reasonable solution to Brazil’s slowdown.

Brazil has proven prone to hyper-inflation, has plenty of repressed consumer demand, and very little experience in analysing credit. There are signs that credit is already stretching consumers with higher default levels and overall consumer debt that is expanding too fast, especially when you remember just what a tiny percentage mortgages contribute. It is time the Brazilian government looked to other levers to keep GDP purring.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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