Aug. 26 - Rob Cox and Christopher Swann discuss how Brazil’s $60 bln currency-intervention looks designed to paper over corporate and policy blunders.
So on Friday Brazil's Central Bank kicked up a sixty billion dollar currency intervention which -- on our columnist says is basically a bailout by another name -- how do you mean that Chris. Well I think the big problem for presented Panamanian companies just didn't land a lesson of the Asian financial crisis which is it pretty stupid to -- -- In a far more kind of foreign currency. The money's flowing in -- looks good I think the temptation -- -- I -- interest rates in the US compared to Brazil. Brazil -- drowning like gangbusters and that now let the situation is your best the -- -- down left about 15%. A little -- that. Annual profits. Tightly -- this is one of these cardinals since that emerging markets have committed or companies in emerging markets. Used to be actually the sovereigns would commit that sin right -- so that the government would borrow in dollars or another foreign currency. What's currency slides now a year post you've got to pay back in in dollar terms something that's. Gone up relative to have you here currency price so what do we have a meeting in Brazil how how big -- infraction was excellent and incorporate essentially since the fun and since the 2000 and I financial crisis that dollar denominated -- foreign denominated debt. Pretty much doubled to about a 178. Billion dollars of that -- doubts. Say it's relatively serious stuff that they're trying tech clambered out and trying to hedge. You have companies like -- paranoid big telecoms company that had to slash its dividend. And they're based jettisoning everything from the balloons they can pay off foreign investors who borrowed money from and it's okay if you bought assets -- supposed to oversee if you bought. I don't know if you've got to meat packing company and the rest of your -- -- -- mentioned -- getting US sending -- getting dollar income from the that's fine -- just a question of how have you been tempted to have you been seduced by the low interest of course this is a story that's being writ large -- emerging markets Indonesia. India we've certainly seen that both those places in the -- in the rupiah revive it crashed basically. Companies are going to be struggling to this but it's not just companies in the case of Brazil and you could argue that social welfare policies. For the consumer. Stimulative policies of the government. Are also part of what's being you know part of it and -- and I think when the mainstay of Brazil's economy that's the reason they grieve stay phosphate the past decade. Consumers racked up huge amount of debt in order to fuel consumption right of the problem is that as the currency -- The price of imports rises and that puts that counts consumption of -- writes that your electronics -- -- -- those things which in in Brazil core results of the finance a lot -- consumer debt yet you know you William by month to month and I I think now. Now -- debt levels that are equivalent to US consumers. Apprised of the financial crisis of these heavily in -- people so basically the last thing being right is extra inflation so and the problem is you have import inflation and currency drops -- basically. The bailout writ large here from Brazil is. Corporations that were profligate in their barring overseas. Who are now getting hit by the drop in the -- now. And that increases in import prices which would be hitting that's for -- hundreds of millions of consumers that have good reason and the middle class results. How long they can go on for this evil thing I have a lot of is that they have 370. Billion dollars have recessed. -- the best thing you don't want to wind these down to each time they do five it's basically for at least Arctic to run dry yeah yeah well they would monitor that. But it we've seen this lesson before does -- our thanks Chris. We'll be back more breaking -- tomorrow.