Magazine article Global Finance

Brazil and Beyond

Magazine article Global Finance

Brazil and Beyond

Article excerpt

Neil Shearing, chief emerging markets economist at Capital Economics, visited Global Finance on September 10, just as Standard & Poor's cut Brazil's public debt to junk level. We asked him about the outlook for that country and other emerging markets.

Global Finance: How would you describe Brazil's current situation?

Neil Shearing: I'm not saying that Brazil is going back to the '80s and the '90's, but the outlook is pretty grim. The fiscal policy is dire, the politics are dire. But two aspects-the weak real and the Petrobras scandal-could represent two watershed moments for the country. I would not be surprised if in two years' time we would look back to when the real hit 4 versus the US dollar as the moment when the Brazilian manufacturers started to compete on global markets, and to the Petrobras scandal as the time when Brazilian institutions became mature [enough] to prosecute politicians for corruption.

GF: Brazil aside, there's a widespread feeling that the boom in emerging markets is over. Do you agree?

Shearing: The speed at which the sentiment is shifting is remarkable, but I think it has gone too far in the other direction. Sentiment was too optimistic six months ago but now may become too gloomy. After a decade of growth, the emerging market sector is a very diverse and different place than it was ten years ago. Back then, all these economies were suffering from similar vulnerabilities, whereas now only a few economies look like that, like Turkey for example.

GF: What about Latin America?

Shearing: In the previous commodities boom, a lot of foreign currency debt was accumulated in Latin America. This time around, if there has been an expansion of debt, it has been mainly local currency debt, and that carries fewer risks. I am still downbeat for Latin America, but it is too black-and-white to say, 'We have gone through a boom and [now] we are going back to the 1980s. …

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