Brazilian President Lula da Silva. (Prensa Latina)
Brazilian president Lula da Silva underscored the good indicators of the Brazilian economy in spite of the world crisis and soaring food prices and said his administration’s policy is to increase production to combat inflation.
“The Brazilian economy is showing strength and sustainability and I think we are going to continue growing even when this inflation caused by food prices, world wide, which is most fluid”, said the president during his weekly broadcast.
“In Brazil we have decided that the best remedy to combat inflation is increasing production. That is why we will continue to promote agriculture”, he added.
Brazil is one of the world’s leading suppliers of food but international prices have hit the domestic market forcing the Brazilian Central Bank to tighten credit with higher interest rates. Possibly the highest in the world with the basic rate at 13 percent and inflation estimated in 7 percent. Compare this with the US where the Fed rate stands at 2 percent and retail inflation is close to 5 percent.
Private economists in Brazil expect inflation in the range of plus 6.7 percent, higher than the latest target of the Central Bank, 6.5 percent.
Lula da Silva in his broadcast pointed out that Brazil has record numbers in job creation and in certain sectors of the economy such as agriculture and construction. In the first six months of the year Brazil generated 1.3 million new formal jobs which represent a 5 percent increase over the same period a year ago. He also pointed out most of the jobs were created outside the main urban areas given the very intense expansion of farming and investments in infrastructure and construction.
But in spite of Lula da Silva optimism, Brazil posted a wider-than-expected current account deficit in June as companies nearly doubled profit remittances abroad because of a strong domestic currency, according to data released by the Central bank on Monday.
The deficit reached US $2.6 billion in June compared with a $539 million surplus in the same month of 2007. In May, Brazil posted a current account deficit of $649 million, according to previously reported central bank data.
The deficit should widen to $2.8 billion in July, said Altamir Lopes, head of the central bank's economics department.
Multinational companies in the country sent $3.4 billion in profit and dividends abroad, compared with $1.75 billion in June 2007, as gains in Brazil's currency made it cheaper to buy dollars.
Brazil's currency Real has gained nearly 13 percent against the US dollar so far this year after surging more than 20 percent last year. The strong real has fueled a surge in imports, cutting the country's trade surplus and affecting Brazil's external accounts.
Foreign direct investment in Brazil fell to $2.72 billion in June from $10.3 billion in the same month in 2007. FDI is forecast to reach $3.2 billion in July, Lopes said.
