EMTA Forum - São Paulo - May 28, 2008
Former Central Bank Directors Discuss Outlook for The Brazilian Economy at EMTA Forum in São Paulo EMTA Board Members Rudi Fischer (Banco Itaú) delivered welcoming remarks and expressed EMTA’s delight at holding its inaugural Forum in São Paulo Forum. He was followed by EMTA Board Member Peter Geraghty (Dresdner Kleinwort) who briefly described EMTA’s mission and summarized its current activities. Sergio Werlang of Banco Itaú delivered the day’s keynote remarks, speaking on the future direction of the Brazilian economy and its reaction to the global credit crisis. Werlang voiced optimism that Brazil’s growth would continue despite concerns that an economic slowdown in the world’s industrialized economies would have dramatic effects on emerging countries. Before launching into his discussion of the Brazilian economy, Werlang summarized the mortgage crisis in the US. He noted his forecast of annual US growth of 1.3% in 2008 with the possibility of growth contracting 0.3% in the fourth quarter. Generally, the de-coupling hypothesis seems to be supported by economic data, according to Werlang. He illustrated his argument with slides showing the US accounts for both a decreasing amount of global imports and a decreasing percentage of global GDP, while the share of Emerging Markets in global GDP is on the rise. Werlang argued that Brazil’s credit rating, which was recently raised to investment grade by two of the major international credit ratings agencies, could go higher based on such factors as improving debt-to-GDP ratio. He projected that all three agencies could rate Brazil at the BBB/Baa2 level by 2009. However, Werlang cautioned that upgrades could be hindered by slow progress on economic reforms, and that other emerging countries could become more competitive than Brazil if their reform efforts bore greater fruit. At the conclusion of his presentation, Werlang detailed his economic forecasts for Brazil. He predicted a primary surplus of 3.8% in both 2008 and 2009; 5.5% inflation in 2008 before declining to 4.5% in 2009 and 2010; the real reaching 1.63 per dollar and GDP trending to 4.5% annually. Click Here for a copy of Werlang’s presentation. Ruari Ewing of the International Capital Markets Association (ICMA) delivered a presentation on Regulatory Developments from a European Perspective. After introducing ICMA and its mission, Ewing gave an overview of the EU regulatory framework. He described the EU’s attempts to create a single market in the financial services industry via a number of directives including the Prospective Directive, the Transparency Directive, the Market Abuse Directive and the Markets in Financial Instruments Directive (MiFID). Ewing also discussed moves towards harmonization between the EU and US regulatory regimes, based on the Cox-McCreevy entente, and listed the issues involved, including a principles vs. a rules-based approach, ex-post enforcement vs. ex-ante supervision and the effects of residual intra-EU differences. Ewing stressed the importance of uniform global regulation in dealing with a global financial market. Click Here for a copy of Ewing’s presentation. Guilherme da Nóbrega (Banco Itaú) then moderated the Forum’s panel discussion. Da Nobrega invited each of the former government officials to give their thoughts on topics including inflation and likely monetary policy over the next eighteen months, the balance of payments and the exchange rate, and fiscal risks. The majority of the discussion focused on Brazil’s rising inflation and the appropriate response by policy–makers. There was general consensus that the Banco Central would have to raise interest rates by approximately three percentage points in order to combat inflation from the Bank’s former employees. However opinions differed on how that three point increase should be implemented. Quest Asset Management’s Luiz Carlos Mendonça de Barros was among the most hawkish on the panel, calling for Brazil’s Monetary Policy Committee (COPOM) to hike rates by 0.75% at its upcoming meeting. Eduardo Loyo of UBS Pactual and Alexandre Schwartsman of Banco Santander disagreed, stating that a hike of 0.5% would be sufficient. Schwartsman disputed comments by industry analysts who have suggested that Brazil’s rise in inflation is due to external food inflation, and asserted instead that much of it has been driven by a rise in domestic demand. Luiz Fernando Figueiredo of Mauá Investments expressed confidence in the Central Bank’s rate hike policy as pursued to date, and stressed the importance of watching economic data in determining future increases. The meeting, which was held in Portuguese with simultaneous English translation, concluded with a cocktail reception hosted by Banco Itaú.
EMTA’s Forum in São Paulo was a high octane event featuring four ex-Central Bank Directors and a former Minister of Communications discussing the outlook for the Brazilian economy. The event, held on May 28, 2008, was made possible with the generous support of Banco Itaú which sponsored the event.
