Miami Group Dinner with Brazilian Central Bank President Henrique Meirelles

By Christian Gomez
April 4, 2008

Brazil’s central bank president said that his country’s current macroeconomic success is no accident, and that Brazil is perhaps more insulated from external shocks than at any time in recent memory. Henrique Meirelles, Brazil's longest-serving central bank chief, told the Dialogue’s second meeting of the Miami Group on Western Hemisphere Affairs that careful steps taken by the administration of two-term president Luis Inacio Lula da Silva have led to sustained growth, low inflation, and positive fiscal balances.

“Brazil has done its homework,” Meirelles said.
 
Stating that today Brazil is in “good shape,” Meirelles noted that the country overcame the longest hyperinflation in history during the 1980s and 90s; a feat that was institutionalized with the passage of a fiscal responsibility law in 1999. Nevertheless, when President Lula came to office in 2003, inflation was at 30 percent per year, reserves were running low, and the debt to GDP ratio was high (56 percent).

Despite having campaigned on promises of increasing social programs, Lula knew that he had to first put Brazil’s fiscal house in order. Only then, stated Meirelles, was Lula able to implement his Worker’s Party platform, including Bolsa Familia, his landmark cash transfer program. Meirelles commented on the irony of a leftist president implementing sound macroeconomic policies.

“Only Nixon could open up [U.S.] trade with China,” he said.

Today, Brazil’s net debt is negative, inflation has been stymied under the Real Plan that was put in place by Lula’s predecessor, Fernando Henrique Cardoso, and GDP growth was 5.4 percent in 2007. Meirelles stated that some might assume that Brazil’s success is due to a benign international environment, but this is not the only factor. Indeed, while the current recession in the U.S. is bad for the global economy and thus bad for Brazil, its economy is surprisingly insulated: Brazilian exports to the U.S. represent only 2 percent of GDP, compared to 11 percent for Mexico.

In addition, financing channels have been improving, and the Brazilian stock exchange (Bovespa) was up 7 percent year-on-year in 2008, versus a 7 percent decline in the S&P 500 during the same time period.

When asked whether 5 percent growth was good enough, given that countries such as Peru are growing at 10 percent or more, Meirelles stated that in previous periods, Brazil had grown at 10 percent with disastrous results. Yet certain regions of Brazil, such as in the north, are growing at 10 percent, and 1.6 million new jobs have been created. Furthermore, the middle class has expanded to 83 million people. Domestic demand, a key development in Brazil’s economic progress, will continue to grow, Meirelles said, noting that both credit growth and price stability have set the stage for a continued positive economic outlook.