Will Brazil ‘become Switzerland’? ‘Pop’ economist responds – 06/20/2023 – Market

When asked why he goes around saying that “Brazil is on the way to becoming the Switzerland of Latin America”, Robin Brooks, chief economist at the IIF (Institute of International Finance), laughs.

“I didn’t know it was that comment that led to this interview. Thanks for letting me know,” says the 52-year-old German economist, raised in Frankfurt and currently based in Washington.

In the American capital, the foreign exchange and emerging markets specialist leads the economic analysis of the international association of financial institutions, which has among its members banks, insurance companies, asset managers and investment funds.

Before, he went through the IMF (International Monetary Fund) and Goldman Sachs —a position that earned him the nickname “Goldman’s bald head” on social media, even though he left the investment bank in 2017.

Days after the conversation, Brooks repeated the comment on Twitter, making it clear that he likes the attention he receives from his Brazilian followers.

In recent years, several of the financial analyst’s posts have gone viral in Brazil, due to an unshakable optimism with the country’s economy —which makes his comments reverberate among lulistas and Bolsonaristas, with both sides claiming credit for the positive scenario highlighted by the economist in colorful graphics.

“The reason why I wrote that tweet is because it seems to me that there is negativity towards Brazil in international markets and that negativity ignores the fact that there are big positive changes happening in the country”, says Brooks, in an interview with BBC News Brasil.

“In fact, Brazil is a kind of model for other emerging markets, in terms of how the country has transformed itself into an agricultural superpower. I believe that this is not being recognized and that it is a very positive scenario”, he adds.

But he throws cold water at lulistas and bolsonaristas, who claim credit for this phenomenon for their political field.

“When I tweet these kinds of things, Brazil’s two political camps claim credit. But I see this transformation as something that transcends the two candidates — it’s a much bigger story than that,” he says.

‘Switzerland of Latin America’?

According to Brooks, his enthusiasm for Brazil has a main reason: in the last ten or fifteen years, the country has had a huge trade surplus —when the country’s trade balance is positive, with the value of exports exceeding that of imports.

In 2023, for example, thanks to the record agricultural harvest, the Brazilian trade balance accumulates a surplus of US$ 35.3 billion in the first five months of the year, the highest result in the historical series and 39% above the same period in 2022, according to the criterion of the daily average.

“This puts Brazil on the path to becoming a country with a current account surplus [soma da balança comercial, de serviços e transferências unilaterais]which is very unusual, both in the history of Brazil and in the history of emerging countries and Latin America”, says the analyst.

Even with a positive balance in foreign sales, Brazil has historically recorded a deficit in current transactions, mainly due to foreign spending on services and remittances of profits from foreign companies operating in the country.

It is this scenario that Brooks believes can change, which would be something quite atypical for an emerging country.

And that was why, the economist says, he compared Brazil with Switzerland — a stable country, with a large current account surplus, a strong currency and a reliable Central Bank.

“With this transformation, Brazil will be able to generate more resources internally, which will allow an increase in investments”, believes the economist.

“This can turn into greater productivity, more wealth, growth, employment. So, it’s a positive and virtuous cycle.”

Shortly after repeating his comment about Brazil becoming Switzerland, however, Brooks slipped up on Twitter, calling the Brazilian currency the “Brazilian peso” instead of the real.

The mistake became a joke, with critics highlighting the economist’s apparent unfamiliarity with Brazil, despite his enthusiasm for the country on social media.

Dollar at R$ 4.50?

Another famous prediction by Brooks is that the fair price for the dollar against the real is R$4.50.

The estimate is also the target of criticism, because the economist has kept the value unchanged for years, even in the face of the most diverse upheavals in the national and global economy.

With the dollar now being traded around R$4.80, however, the analyst believes that his projection is closer to becoming reality.

On the geopolitical level, the persistent tension between China and the US and the war between Russia and Ukraine are advantageous factors for Brazil, believes the chief economist of the IIF, and may contribute to attracting foreign resources to the country, which would help to appreciate the Brazilian currency. .

“A lot of people invested in Russia and Ukraine and lost a lot of money. They don’t want to get caught in a similar situation amid the China-US rivalry,” says Brooks.

“It means foreign investors are looking at Brazil in a way they haven’t in the last decade or so. It means the country can attract money cheaper than in the past — from long-term investors and sovereign wealth funds that have many resources and are interested in investing in infrastructure and buying stakes in companies.”

Another favorable wind, according to the economist, is the apparent end of the inflationary shock in the United States and the recent decision of the Fed (Federal Reserve, the American central bank) to interrupt, for the time being, the cycle of high interest rates in the American economy.

When interest rates rise in the US, it attracts investor funds to that country, damaging the liquidity of emerging countries like Brazil. When interest rates stop rising there, the opposite effect is expected.

“Brazil has not had such a favorable environment since the post-financial crisis of 2008”, says Brooks. “In this scenario, the dollar goes to R$ 4.50, or below, it is perfectly possible”, she defends.

Most economists, however, predict that the dollar should return to operating slightly above R$ 5 in the coming years, according to the Central Bank’s Focus bulletin, which gathers projections from financial market economists.

Central Bank, Lula government and ‘cautious optimism’

In the fight between the Central Bank and the Lula government over the level of interest rates in Brazil, Brooks says he has no side, but praises the monetary authority’s performance in combating inflation in the country.

“The Central Bank [do Brasil] he did a phenomenal job,” he says. “In advanced economies, the criticism is that central banks were too slow to raise interest rates and respond to inflation. This is definitely not the case in Brazil. I believe the Central Bank, its president and his team deserve a great deal of credit for this. And that this is very positive for Brazil.”

As for the first six months of the PT government and the performance of the Minister of Finance, Fernando Haddad, the economist is more restrained.

“I think the government is still very young and that the markets are starting to learn how the government speaks”, he says. “Confidence in the government is growing so I’m cautiously optimistic.”

Optimistic under Bolsonaro and now optimistic under Lula, Brooks says he sees nothing that could shake his positive view of Brazil in the near future.

“Many people did not like the result of the election. What interests me is democracy and a peaceful transfer of power. This is what really sets Brazil apart from autocratic governments, which now have difficulty attracting capital,” he says.

“If it were the case that the balance of trade [brasileira] if it suddenly deteriorates and we go back to where Brazil was ten, 15 years ago, that would make me more pessimistic. But this is highly unlikely. In fact, it’s basically impossible at the current juncture.”

This text was originally published here.