As seen from the end of
the previous weblog, given the very targeted optimism surrounding the
US at present, within what is an improving but bruised global
economy, it looks likely that even though more protectionist itself
regards internal policy, Brazil will be willing to increase its
mutual trade levels with North America.
Doing so would better
balance and better broaden its exports (and reciprocal FDI) template,
given the slowdown in Chinese base metals production correlated to
decreased infrastructure spend and processing/secondary industries
spend. Furthermore it is now shown that even with the multitude of
people, its own rise up the value-ladder and accompanying rise of
general living standards and expectations has meant the greater
scarcity of both the very low cost unskilled manual worker (hence its
own off-shoring) and indeed increased scarcity of the suitably mid
and high skill levels; resulting from the impact of a decades' worth
of a strong wage-inflation spirals, now resulting in a markedly
higher cost of labour across the full labour spectrum, so much so
approaching 70% of Southern Europe wage rates; whilst its poor
'demographic pyramid' also creates headwinds for future wage
deflation.
Thus recent reports
demonstrate that on an (unavoidably simplified) like for like basis,
Brazil now sits below its counterparts within the BRIC bloc in terms
of the cost of its broad (industrial and commercial) skills base, and
thus comparatively boosts levels of per person productivity.
This state of affairs
indicates that the potential for a strong trade relationship between
an increasingly buoyant North America and a competitively
export-priced Brazil.
Importantly one in
which, unlike that of China's previous ravenous appetite for enormous
exports of low-value commodities. Should now be based upon a far
better balance of respective low, mid and even high value-added goods
and services; from commodities to vehicle components to IT services;
this in turn boosted by a strengthened Dollar and mid-term weakened
REAL (itself much strengthened over the last year, since its 'bottom'
as of Feb 2016, but even so still appreciably below its pre-2015 FX
rate). With interestingly - unlike China, Japan and Germany - Brazil
not accused of a deliberately induced 'currency manipulation' by
Washington.
Both informed global
investors and America's general populace have obviously become more
optimistic about the 'Trump Pledge': specifically promises regards a)
corporate tax cuts for nationalistic producers, b) additional fiscal
stimulus b) higher government spending on 'economic multipliers' (eg
Defense) and c) planned and 'shovel ready' infrastructure projects.
Thus whilst Brasilia's
political administrators are still reshuffling and under the auspices
of the new President Michel Temer (his appointed cabinet lambasted as
heavily white and male) it seems that the old guard
politico-industrial complex should be able to 'reset' Brazil back
onto its previous growth path.
Of course the fate of
'Brazilian Autos' – from parts to finished vehicles to increasingly
Engineering and Research - resides very much in the government's
ability to balance or re-prioritise export demand vs domestic demand,
producing nations typically having to 'drive' one or the other, which
although not always economically incompatible do have historically
defining policy characteristics: related to the either a constraint
of wage rates to create a durable competitive 'export edge', or the
opposite of intentional wage-inflation to boost domestic demand, as
seen in China to date.
Brazil has historically
been here time and time again, and as previously stated, the
following will provide a snap-shot of the watershed periods with
Brazil's modern economic past.
From a period of
stagnation and indeed stagflation, Brazil undertook much internal
economic 'house-keeping' having recognised the destructive perils of
unrestrained foreign debt previously used to fund internal growth,
and thereafter responsible re-connection to globalisation and its own
enterprise spirit; so much so that it was able to steer itself
through sizeable international and national economic challenges and
later take advantage of global economic tailwinds.
The Latin American
[Sovereign] Debt Crisis -
(1970s/80s)
As depicted throughout
this weblog via illustration of the Brazilian automotive ambition and
expansion, the nation long sought to become a true equal to the
world's leading industrialised countries. Since even the 1920s some
believed that its 'development destiny' had become essentially denied
because of the strong focus Anglo-Saxon held 'global finance' had
toward the ever-expanding USA, the desire to reconfigure the
industrial and commercial power-base of Europe through its national
bourses, and likewise re-configure the economics of the newly
independent and expectantly independent countries (from Northern and
Eastern Africa to India and far beyond).
Such immediate and
varied focus by the powers of finance – that would continue well
into the future - meant that the immense potential and promise of
20th century had been lost; to the anguish of many
Brazilians, from politicians to the people. As recognised, it would
thus remain as a low-value provider of a mass of exportable
commodities, and thus set on a slow development path.
As also seen, Brazil's
answer were the catch-up efforts of Vargas and Kubitschek, the
instillation of basic industries and the notion of '”50 years
development in 5 years”.
Even though relatively
untouched by the decimation of WW2, the European reconstruction plans
would provide the impetus of rapid change without the political and
populace problems experienced in Germany, France, Netherlands etc.
Thus, Brazil's new construction and development plans, much across
'greenfield' sites, did indeed prove rapid and powerful through the
mid 1940s to the mid 1960s.
Visible change appeared
almost exponential by way of impressive infrastructure and prolific
industrial growth, creating a near virtuous circle of improvements
regards standards of living for a new educated middle class, and
indeed set high expectations for the masses existing either still on
the land or in pop-up shanty towns and suburbs that served the prime
economic locations.
However, whilst growth
was indeed prolific it was also somewhat misunderstood, given that
much could be seen to be achieved from such a small and low base-line
to raise the lifestyles of a small proportion.
But severe problems
would be encountered when, in good faith but with limited
appreciation, those in Brasilia believed that Brazil's 'economic
miracle' could be maintained well into the future, for the gain of
the masses, by 'betting the farm' on the wealth generation of the
day.
It was also previously
seen that Brazil continued to enjoy good fortune through the late
1960s and early-mid 1970s whilst the USA and Britain had suffered
downturn and recession. In this manner it was the largest of the many
Latin American countries to progress unabated, the feeling in central
and South America being that the external recession was (on a global
level) very localised and the result of over-speculation and
over-investment after two and a half decades of economic expansion.
On the face of things
Brazil's masses were still living in the comparative 'dark-ages'
compared to North Americans and indeed the more fortunate Europeans.
So it was understood and believed that with much yet to be achieved
to provide for the many, that there was still much room for further
enormous value extraction from its resources, people and processes,
with such a virtuous circularity the basis of justified federal,
state and private capital sourced investment. This the strong basis
for a continuation of national expansionary policy.
However given the very
scale of the development challenge and the inability to self-fund
civil projects from government coffers alone (given the already heavy
burden of infrastructure spend), economists recognised that
relatively inexpensive foreign funding could be obtained given the
country's vibrant health and its accordant 'low-risk' sovereign-bond
ratings and likewise a similar strength within semi-private and
wholly private industry allowing relatively low coupon 'paper' and
low interest 'notes' to be issued.
These were indeed
issued to enthused well established and newly emergent foreign
investors, who themselves wanted better ROI than was immediately
available from either the US or Europe (booming Japan of the time
still effectively closed to foreign parties as the family-led
Keiretsu conglomerates maintained strong intra and inter allegiances
so as to rebuild and propel Japan).
As a proven economic
leader some might argue that Brazil not only created the standard
sovereign template for attracting foreign capital, but also heavily
promoted the concept amongst many other 'forward-looking' yet lagging
Latin American countries. Most notable were Argentina and Mexico. The
former with similarly strong European ties for technology transfer
and a well educated population, whilst the latter had a low cost base
and an inevitable future serving the USA far beyond tourism. Vitally,
it seems likely that both Argentina and Mexico sought to recapture
their distant glory days – and felt similarly “denied by history”
- and thus sought to make the developmental leap forward to gain
their “rightful places” much higher up the world economic order.
Buoyed by the good
times that rampant Capitalism brought, with little apparent reason to
be overly cautious, and with a need to both serve the public good and
repel the ever-present threat of revolutionary Socialism and
Communism, Latin America chose to take advantage of the world's money
markets and to access at cheap rates what seemed a glut of foreign
finance, much of that generated by the new crop of oil rich Middle
Eastern states themselves far further behind on the economic
development path.
[NB Given the vast
internal distances involved and reliance on numerous fleets of
diesel-powered goods vehicles and locomotives, Brazil's own growth
relied upon access to suitable and affordable transport fuel (beyond
self-made car related Ethanol). Supply for this high demand readily
available from the Middle East: hence the economic mutuality appeared
wholly rational].
To maintain the
'miracle' growth model meant the funding of federal,state and
municipal infrastructure investments and transformative social
programmes (from education to health etc), and to do so Latin
America's average national borrowings from foreign sources rose at an
annual rate of 20% over the seven years from 1975 to 1982.
Numerically this meant external debt grew from US$ 75bn to over US$
315bn; about half of Latin America's total Gross Domestic Product,
with the servicing of the debt ratcheting-up at an even faster rate.
This was largely
because much of liquidity obtained had been negotiated in the
benchmark 'stable' US$ (with additional fringe Middle Eastern lending
likewise in Dollar-pegged currencies). Unfortunately, unforeseen was
the after-effect of the OPEC created Energy Crisis and its
after-effects, vitally the premis that after five years of economic
stagnancy by 1979 the USA started to raise the domestic interest
base-rate. Doing so to both battle internal price-inflation (and so
real-world devaluation of the world's cornerstone currency),
strengthen the banking sector's profitability so as to grow domestic
lending to businesses, housebuyers and consumers, and (ironically)
also seek to attract foreign liquidity onto its own shores as part of
its own globalisation and inward-investment agenda.
[NB this primarily that
of cash-rich Japanese firms – from Toyota to Hitachi to Mitsubishi
- who had gained from their own exports to the USA, and sought
'transplant' factories, so strengthening vitally important
US-Japanese relations].
That revaluation of the
US$ created unexpected FX “distortion” which in turn added much
greater “load” to typically both the principle and interest
payments borrowed by LatAm nations.
Added to which, much of
the renewed global investment focus during this period by many
institutions (from pension funds to newly emergent 'hedge funds') was
directly upon the USA's high-finance and main street banking sector,
serving mid and high-value industry (such as computing), a
revitalised corporate America (through fully deployed IT and
containerised logistics) and new avenues of consumer-credit. (This
process expected to thereafter be replayed in the UK).
This done so from 1979
onward as US government policies to end stagnancy began to take hold,
but still during the pains of the 1980/81 recession.
The devastating result
was that the 'delayed' US recession itself had a global knock-on
affect, especially for commodity exporters to the USA. Trade Unions
and State-Aid had managed to previously keep large portions of
flailing domestic heavy industry (steel, chemicals etc) going – if
not profitably afloat against far more efficient and cheaper European
and Asian competition.
But by the late 1970s
with new vehicle sales down, housing starts low and City and State
budgets deep in the red (eg New York etc) so unable to undertake
infrastructure spend, demand for steel, aggregates etc collapsed and
with it demand for various Brazilian commodities.
Thus Brazil and its
neighbouring countries were caught between both 'the Devil' in terms
of Foreign Loan Debt Servicing and 'the Deep Blue Sea' in terms of
sizeable reduction of exports and so vital US$ denominated income.
Banking analysts
recognised the enormity of this problem, made all the more fractious
given the short-term time-frames loans had been agreed upon, which
inevitably led to the first of many negotiated delays, defaults and
'deferments'; Mexico the first to officially highlight its precarious
position, which halted most if not all capital markets lending for a
time. Thereafter the need to overcome this new reality meant that new
agreements would be drawn-up.
The need to fulfil
these agreements, as supervised and financed by the IMF, would lead
Brazil and its neighbours into what became known as 'The Lost Decade”
between 1982 and 1993.
Hence, far from
ensuring the ongoing public joy of the previous 'economic miracle'
the optimism of Brasilia's economists, public servants and
politicians – who themselves were undoubted beneficiaries of
globalisation's 'top-tier' advantages – meant that they either
unwittingly over-looked the idea of a 'Global-Macro Worst-Case', or
simply preferred to ignore any possible potential for economic
collapse in their own 'Impact vs Probability' scenario plotting.
Untold Millions were
trapped in poverty as a direct and indirect result – loss of
employment to contraction of welfare programmes as austerity measures
took hold - affecting the prime of one generation and impinging on
the life-chances of those following.
This episode was a
stark experience for many older Brazilians to this day, who unfairly
place populist blame on the IMF for the outcome (the IMF actually the
arbiters and financial saviours) when that blame rests squarely on
the shoulders of their own supposed political intelligentsia.
The 'Plano Real' -
(1993/4)
From the late 1960s
through to the late 1970s the Militarily-led government had relied
upon a mixture of foreign financing, depletion of the national
pension plan, much state-owned industry, substantial government
expenditure and heavily capped labour rates to fuel domestic and
foreign investment led national growth.
However, whilst this
led to surplus profits “profiteering” so as to encourage further
investment, the situation ultimately led to ever increasingly high
inflation by the mid 1980s, the heavily protected state industries
and huge diverse conglomerates essentially oligopolies with little or
indeed no competition to drive down prices and so inflation.
This resulted in a near
decade of rising prices without fundamental economic growth, and thus
the 1980s were seen as a 'lost decade' and compared to the impact of
the 1929 Great Depression. Seemingly unable to effect change by the
mid 1980s demands for authoritarian regime change were being heard,
for the return of democracy and hope that new minds could solve the
national dilemma.
This would be
eventually achieved, by way of the 'Plano Real', but only as the
result of much economic experimentation, desperate failures and a
worsening of conditions as from the one failed plan was superseded by
another. Ultimately it would take eight long years between 1986 and
1994 – almost a new plan every 6-12 months - for the beginnings of
a new positive economic era to become apparent.
The annually re-formed
economic plans were:
1986....Plano Cruzado I
and Plano Cruzado II
1987....Plano Bresser
1988....Politica Feijao
com Arroz
1989....Plano Verao
1990....Plano Collor I
(“Plano Brasil Novo”) and Plano Collor II
1994....Plano Real.
These former efforts
had instigated the privatization of SOEs and the reduction of import
tariffs – both important steps forward that in years to come would
provide great international goodwill and encourage trade.
But because of policy
limitations (from short-sightedness) they also tried and failed to
stop the enormous inflation and hyper-inflation over the fourteen
year period between 1980 and 1994. The triple digit annual rate rises
leading up >2000% in 1989. Doing so by introducing what were
ultimately short-lived “lip-service” currency name changes with
inadequate fiscal and monetary reforms to underpin the reforms seen
in enterprise and commerce.
After much painful
experimentation - itself having to react to a fast changing 'Main
Street' commercial dynamic that ultimately yet again rested upon the
stability of the US$ - it was recognised that any successful remedy
would need to understand the effects of the 'Inertia Inflation
Phenomenon'. This was the term given to the fact that in everyday
commerce official and unofficial indices was trying to pre-gauge
stagflationary price rise effects and so in itself became a leading
prompt of the inflationary spiral; especially so as the US$ became a
favoured exchange basis where at all possible, especially regards
large and very large purchases between businesses.
Up until 'Plano Real'
previous currency reformats / name changes had effectively ignored
the reality of the market-place and sought to impotently intercede
with little more than a new veneer and eternal hope of disinflation.
'Plano Real' introduced
efforts that honed-in upon the root of the currency disparity
problem, doing so by identifying and promoting pricing parameters
with far greater recognition of reference to a pre-set 'nominal
valuation' against the US$ and a certain base-point. This both
partially recognised the effect of high inflation and provided a
method by which to tame the devaluation problem.
This included the
creation of a non-monetary currency (used only in official
calculation not in circulation) called the 'URV' (Unidade Real de
Valor) [Real Unit of Value] the strength of which was rated (with
slim flexibility) either side of US $1.00. The dual currency listing
was used at first in closed markets and later increasingly amongst
the power players of open markets on 'Main Street', in which both the
'Cruzeiro Real' (the then in-situ Brazilian currency) and the URV was
shown by vendors to buyers; but any exchange had to take place using
only the readily available 'Cruzeiro Real'.
At first viewed as
another attempt at 'smoke and mirrors' its ongoing existence
eventually started to have the required positive affect. This was
given further credence with the dispensation of the 'Cruzeiro Real'
and use of the simplified 'Real' (adding longer term perceptual
validity).
This was supported by
major shrinkage of fiscal and monetary policies with primarily
government spending and expenses much reduced and the raising of
interest rates to stem the previous entrenched state and industry
behaviour of massive borrowing from large liquidity pools at low
rates, which had exacerbated both profits and inflation. The
base-rate change both quelled the previous domestic frenzy whilst
simultaneously attracting foreign capital on the higher government
paper yields, so reducing the national Current Account deficit,
raising Brazil's foreign currency reserves, with the effect that the
raised base-rate could also underpin what was at first seen as an
ambitiously high official valuation against the US$.
Between 1995 and 1999
the New Real, backed by economic policies, did indeed maintain
welcome new strength, with foreign industry (including global
auto-makers and parts suppliers) viewing the country as stable enough
to once again invest within to a level not seen since the early to
mid 1960s.
The good times appeared
to be back, but a new currency crisis in the opposite direction of
'Maxi-Devaluation' would create new worries for Brasilia in early
1999 when the Real ended its quasi-fixed FX rate against the US$ and
was allowed to notionally 'free-float' on world capital markets.
Unfortunately the Real
was caught in the aftermath of the Asian Tiger Crisis – upsetting
the world view on many (if not all) previously fast-growing EM
nations, from Asia through Latin America and into Africa. But the
initial high volatility experienced meant that Brasilia soon
stepped-in to support the international value of the Real
The results were that
from 1994 to 1999 the Brazilian based and new entrant foreign
auto-makers were both able to initially take advantage of the weak
but strengthening Real by expanding in-situ production sites and
capacity, whilst latterly utilising the later strong 'dirty-floated'
Real to reduce the cost of 'high-value' imported specialist
components from overseas, especially specific electronics items
manufactured in S.Korea and elsewhere across SE Asia (ie engine
management hardware and in-cabin instrumentation and entertainment
hardware) as various SE Asian currencies dramatically suffered
'overnight' devaluation.
The 'Asian Tiger'
Financial Crisis -
(1997/8)
The slow-trickle spread
of Capitalism throughout S.E Asia from the mid 1960s onward –
massively assisted through the creation of a separate S.Korea –
followed in the trail of the seen to be booming Japan.
Throughout the 1980s
the region grew, albeit slowly, relying upon newly invigorated trade.
It became ever more integrated as aspirant nations such as Malaysia
sought their own 'economic miracles' through the licensing and
importation of foreign technology transfers (eg Proton Cars and later
Perodua Autos, leading to Proton City), whilst those less developed
countries such as Thailand and Indonesia initially became the new
low-cost centres for materials processing and associated low-value
production and assembly.
Much of this prompted
by Japan, which by even the early 1980s needed to off-shore its own
low-value activities in consumer electronics and vehicles to off-set
the much increased cost-base at home and to thus retain its
'salaryman' (job for life) corporate culture, which underpinned
social cohesion.
In this period China
was yet to become the regional economic giant, yet it too had
historical trade links with many countries importing food, textiles
etc whilst exporting military hardware, thus was also a less prolific
but important influence; especially so with use of the US$ (in what
was supposed to be a closed-economy) for cross-border transactions.
The 'colonial'
influence of the Dutch in Indonesia, the British in Malaysia and
Americans in S.Korea, together with the independent trade hubs of
(previous) Hong Kong and Singapore meant that by the 1980s leading
financiers and industrialists across the region had been born into
the schism of highly mixed-market economies, politicians typically
facing West and East as desired to ensure commercial vibrancy through
the decades.
And it was that very
vibrancy which underpinned the elite's focus on personal and family
wealth - as opposed to national financial standing – that created
what became the most prolific case of overlooked pan-regional
'balance sheet bankruptcy' and ensuing regional 'financial contagion'
ever seen.
By the early 1990s the
region's historic trading network had been boosted yet further by the
1967 creation of the ASEAN trading bloc, the major influence of Japan
therein, and renewed interest by the West (from semi-conductors to
shipping).
[NB the original ASEAN
founders being: Malaysia, Singapore, Indonesia, Philippines and
Thailand, with the later participant members of: Brunei (1984),
Vietnam (1995), Laos and Burma-Myanmar (1997), Cambodia (1999), with
East Timur and Fiji awaiting membership acceptance].
By the early 1990s the
most developed and powerful nations were S.Korea (powered by its
cheabol industrial and commercial structures...akin to Japan's
Keiretsu) followed by a well proven Malaysia and thereafter the
subtle achieved yet heavily reformist Indonesia and Philipinnes; with
Thailand well engrained in regional trade yet still to undertake
formal structural change.
This fundamental shift
in economic stance plus the offering of high interest rates provided
the basis for much inbound foreign originated finance, especially
from the West. The rationality was that the foundations of strong B2B
and B2C markets were being created, and any parked monies for future
local investment would be well rewarded with strong monthly and
annual interest gains and the high probability of a strengthening
currency over the mid/long term so boosting repatriation values.
Thus through the late
1970s, 1980s and into the 1990s Asia absorbed about half of EM
inbound money from AM countries, SE Asia most favoured, with annual
national GDP rates growing at 7 – 14%. At last SE Asia appeared to
have its own 'Economic Miracle' 25 years after Latin America's own
speedy development experience.
As such (after the
Japanese Yen) the economic strength and increasingly liquid Won of
S.Korean meant that it became the region's most powerful currency,
followed by the 'up and coming' Malaysian Ringitt , Indonesian Rupiah
and the Philippino Peso.
However, it was a
somewhat haphazard process through relatively small control-loops of
power, whereby incoming monies were ostensibly put into specific
asset-classes that themselves were being orchestrated by those in
seats of power at federal and state levels. Such people would
themselves have been direct or proxy-represented early investors in
schemes, the value of their own holdings inevitably boosted merely by
the existence of incoming foreign funds, even before being thereafter
increased when projects became promoted and 'made live' with official
go-ahead' or indeed later rounds of investment sourcing came from
supportive local underlings.
But a primary emergent
problem in the region was the critical value-divergence between the
retained (ie overt high valuations) of pegged currencies and the
effective devaluation of national current accounts in ever greater
deficit status; Thailand, Indionesia and S.Korea the most exposed.
Given Thailand's lesser
development stage, less used in foreign trade transactions was the
Baht. However the country's increased proclivity/reliance upon inward
bound high-value tourism from the West, Australia and Japan generated
a 'schizophrenic' economic oddity. (Thus it may be believed that this
state of affairs was deliberately used to maintain an unjustified
internal valuation since the early 1980s, to absorb ever more liquid
foreign currencies).
It was all too sadly
ironic then – but perhaps predictable by cynically aware economists
- that it was the very issue of “empty” national foreign currency
reserves, and so a questioning of the Baht's true comparable value,
that set off the pan-regional currency fiasco.
[NB The prime question
is how did Thailand come to have such empty foreign reserve coffers?
One answer - by
external and independent critical observer – being recognition that
with any closed, semi-closed or opaque currency, there was (is) a
high likelihood of manipulation of the system.
This being that
internally transacted and taken-in foreign currencies exchanged for
the Thai Baht (whether: American $s, Australian $s, Canadian $s,
British £s, French Franc(s), German Deutschmark(s), Italian Lira and
Dutch Guilders, Australian $ and Japanese Yen by incoming wealthy
tourists) would very likely be locally be in turn purchased by Thai
seniors (individuals and company entities) on more favourable rates.
Thereafter possibly held in local personal or company
foreign-currency accounts and used on foreign visits in the original
dominion countries to fund lifestyle and high-value purchases (jewels
to property). Or indeed that foreign currency swapped again into
another currency through the Bureau de Changes at such destinations.
Although very probably
not illegal, such activities - for obvious personal gain – would
have been at the high cost of Thailand's own sovereign monetary
strength].
The outcome of such
paucity of foreign reserves meant that the Thai Baht was forced to be
'floated' against ASEAN and world currencies, so as to ascertain its
realistic value, as opposed to trust in the US$ peg it had previously
used.
The high comparative
level of foreign debt effectively illustrated the nation to bankrupt
almost overnight, so creating a snowball of ever greater devaluation
of the Baht on international FX markets and indeed within the country
itself.
Other ASEAN countries
were soon evaluated, and though with overt foreign-debt levels, were
perhaps unfairly viewed to be directly comparable to Thailand's
example.
Almost immediately
Indonesia was similarly struck with sizeable investor retrenchment
and collapsing Rupiah, even though its had a broader economic base.
And very irrationally the S.Korean Won was hard hit simply because of
trade links to both these countries, so showing the power of fear in
little understood nations. Thereafter Hong Kong, Malaysia, the
Philippines and Loas were measurably affected even though only the
latter two could in any way be considered remotely fragile. Least
affected, but still impacted, were Singapore, China, Taiwan, Vietnam
and Brunei, themselves unable to escape from the margins of the storm
even if it made little sense to be caught up in it.
[NB Herein it seems
likely that even with adequate communications, the multi-island
geography of the Philippines and Indonesia added to the disquiet at
the local level, with millions of small commercial enterprises
rapidly raising 'on the street' prices to cover possible devaluation
shortfalls, so exacerbating the issue].
Thus the 'hot money'
that had entered these high potential countries over a decade and a
half was very quickly withdrawn by its foreign owners, so plunging
the FX values of those nations concerned.
[NB What is of note was
the very speed that such notional investments could be retrieved,
suggesting that great swathes had always been intentionally held
“very liquid” in cash, shares and short term bonds, and a lesser
degree than would be expected transacted into the norms of true
long-term investment (ie property, private infrastructure, heavy
plant and machinery, offices etc), though these too enjoyed high
asset-price gains in the apparent investment frenzy].
The effect on these
regional economies was devastating, 'boom' had turned to 'bust'...
The obvious consequences for Brazil
was rapid reduction of exportable extracted and
agricultural commodities to those affected Asian countries, especially
S.Korea which had by then become a global centre of metals processing
(using iron ore, bauxite/alumina, copper, silicone) to feed its
rapidly expanding automotive and electronics sectors, and the recession damaging new trends in disposable spending, specifically the emergence for fashionable hi-style coffee drinking (using different coffee beans in dry and roasted whole and ground forms and as varied powders).
And importantly beyond
that immediate export drop in (B2B and B2C) demand because of ASEAN conditions, the strong
comparative inverse rise of the Brazilian Real against the Won, Rupiah.
Ringitt and Peso, meant that even any remotely possible quick
turnaround in the local fortunes of these SE Asian countries would not
provide a similarly quick export rebound for Brazil. This would be seen in the 'write-downs' on Brazilian exporter's income statements and balance sheets, so impacting investor sentiment for a period.
Brazil had twice before
in the 19th and mid 20th centuries sought to
diversify itself away from the known foibles and economic traps of
exporting its plethora of commodities to periodically ravenous and
thereafter over-supplied global markets. First Europe, then the USA.
Hence the ISI policies that had achieved so much to create internal
demand and a more balanced Brazilian economic model.
But, its own
Ricardo-espoused national competitive advantage would not be so
easility dislodged from commercial reality and so the sizeable
exports to the previous “Asian Tigers” would soon be re-routed
elsewhere, predominantly China, a new crop of EM countries (MINTS and
CIVETS), and even to the quickly recovered 'Asian Tigers' themselves.
