Friday, 10 March 2017

Micro Level Trends – Brazil's Automotive Sector – “Brazil 66”...Sixty Six Years of Economic Power Lifting (Part 5.1.1)

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 -

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' -

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 -

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.