Economic crisis hits as Brazil builds

Posted in Latin America | 28-Oct-08 | Author: Chris Kraul| Source: Los Angeles Times

Traders work on the main floor of the BM&F Bovespa stock exchange market in Sao Paulo.

With investors and credit markets spooked by the global financial crisis, Brazil is facing delays in crucial billion-dollar public works projects that it needs to modernize its economy and join the upper tier of world powers.

Word of likely delays in electric power, oil and wood pulp projects comes as Brazil hosts an emergency meeting today in Brasilia of leaders of Mercosur, the trade bloc that includes Argentina, Uruguay, Paraguay, Chile and Bolivia.

Markets across the hemisphere were battered last week. Brazil's main stock index, Bovespa, plummeted nearly 40% this month after the finance minister encouraged banks to merge and the nation's central bank said it was committing $50 billion in reserves to shore up the currency, the real, which lost 17.5% of its value against the dollar last week.

Prices of commodities, on which Brazil and other countries in the region depend, sank like stones. The World Bank, Inter-American Development Bank and International Monetary Fund all said they would offer billions of dollars in short-term credit to Third World countries reeling from the global shocks.

In Brazil, the mood has darkened since mid-September, when President Luiz Inacio Lula da Silva flippantly referred to the crisis as "President Bush's problem" and assured Brazilians that hundreds of billions of dollars' worth of major port, road and electric power projects would go ahead.

But in recent weeks, the credit crunch has begun to affect plans near and dear to Lula's heart, including a $250-billion Growth Acceleration Program in partnership with private industry. The plan was designed to make up for a 25-year deficit in public works construction since currency devaluations and hyperinflation plagued Brazil in the 1980s and 1990s.