Q What actions did you take to equip Brazil to deal with the global economic crisis?

A Brazil learned from the past crises and addressed its most important vulnerabilities. They were concentrated on the fiscal area; not only municipal state, but also federal government. Brazil always used a managed or pegged exchange rate. Normally, the currency was capped in order to help control inflation.


The past vulnerabilities led to bouts of inflation and also to current account/balance of payments crises. This normally led to a pro-cyclical action on the part of the central bank. In order to curb domestic demand and generate surpluses, the central bank raised rates. So we had a tightening of rates at a time when the economy was contracting. That led to volatility in output, volatility in the inflation rate and volatility in the interest rate. It also led to instability in the financial system.

Q What is different now?

A Brazil tackled all these problems by initially adopting very strict prudential rules for the financial system as a result of the banking crisis in the 1990s. Brazil also adopted a very austere fiscal responsibility law that became part of the constitution. That enabled Brazil to target a primary surplus for the budget. This has been met for the past 10 years and those targets were increased in 2003.

Q What about the inflation rate in Brazil?

A Inflation rates have been at target for the past few years and a free-floating currency regime saw Brazil generate trade surpluses, enabling the central bank to accumulate almost $200bn of international reserves. Equally important, today the treasury is a net creditor in foreign currency by a large margin. In the past, more than 50% of sovereign debt was dollarised.

Q How did this help keep the crisis at bay?

A There was a different dynamic as we approached this crisis, when compared with previous crises. When risk aversion went up in the markets and the real depreciated, the reserve value in dollars went up and as a result of that, the net debt-to-GDP ratio went down, and that worked as an automatic stabiliser. During the crisis, the total net sovereign debt-to-GDP ratio fell from 40% to 36%. Brazil also had foreign exchange reserves, which enabled the central bank to act pre-emptively during the crisis and to replace the lack of crossborder [credit] lines, which had been restricted as a result of the post-Lehman changed credit circumstances.

Q What is the current unemployment rate in Brazil?

A This year, Brazil has already created 1 million new jobs, which more that offset the job losses brought about as a result of the downturn. The unemployment rate for the month of September 2009 was the same as September 2008, which was the lowest ever [for September].

Q What was the thinking behind the recent 2% tax on foreign portfolio investments?

A The action was taken in order to mitigate some of the euphoria, which could have led to market exuberance. The idea was to avoid a bubble being created.

Q Is there a danger of a BRIC [Brazil, Russia, India and China] bubble?

A The most problematic bubbles are the ones that are credit driven. With credit bubbles you have two components: you have the monetary component and you have the prudential one. On both fronts, Brazil took some very important steps in the past few years. Brazil has the most severe prudential regimes in the world and we keep improving it so as not to risk a credit bubble.

Q Looking ahead into 2010: what threats do you see to the recovery in Brazil?

A The key threat to the economy will be too much euphoria and too much exuberance; in other words, bubble building. The challenge is to keep a responsible monetary and fiscal policy.

Q What more needs to be done to improve Brazil’s infrastructure?

A Transportation is the most important area, plus the ongoing projects in energy should be kept on track – in particular hydroelectric.


Henrique Meirelles

2009Central bank of Brazil


1999FleetBoston Financial

President of global banking

1996BankBoston Corporation

President and chief operating officer

1984BankBoston Brazil