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Published by the CIPS Network of the National Association of REALTORS®
Second Quarter 2002
Brazil and the Argentine Crisis
By Romeu Chap Chap
The performance of the economy has an intrinsic relationship with the dynamics of the real estate business. Not so long ago, this relationship was restricted to the territorial limits of each country. Today, with globalization, markets are interlinked, so that a "hiccup" in a given locality affects the economies of the entire world. Brazil's real estate industry clearly reflects this reality. In the most relevant foreign crises (Asiatic Tigers, Mexico and Russia, including the downturn of the U.S. economy), a significant negative impact was noted in the launching and sale of real estate areas. The reason is simple: to prevent the flight of foreign capital, the government had to raise the interest rate, a measure that does not favor our segment, typified by the long term.
Last year, the Argentine crisis erupted. The international community then turned its attention to Brazil, in order to find out if our country would be contaminated, since the problem was occurring close to us, with an important MERCOSUR partner. However, what has been observed up to now totally diverges from the most dramatic forecasts. We have firmly resisted yet this further turbulence, and there is one sole reason for such: the Brazilian Government is doing its homework.
Since the institution of the Real Plan, seven years ago, various adjustment measures have been adopted, through a succession of actions to maintain inflation low, combat the fiscal deficit and balance the Country's accounts. Thanks to these actions, we managed to absorb the impacts of the Argentine crisis and the speculations that normally occur on such occasions, as was the case with the dollar, whose hike was judiciously contained by the Brazilian Central Bank with systematic interventions in the market. This behavior strengthened credibility and confidence before the international community, which was also reflected in the inflow of foreign capital: in 2000, we received investments on the order of US$ 23 billion, against a forecasted US$ 18 billion.
Argentina is an important partner for Brazil, especially in the export field. In 2001, we exported US$ 14 billion to the U.S. and US$ 5 billion to Argentina, followed, in sequence, by Holland (US$ 2.8 billion), Germany (US$ 2.5 billion)-with a tendency of growth, on account of Chancellor Gerhard Schroeder's recent visit, in pursuit of new business in the Country-and Japan (US$ 1.9 billion). These data evidence the importance of Argentina for the Brazilian economy. For this reason, our government is doing its utmost to help it overcome its current problems, including on behalf of MERCOSUR.
As for the performance of the Brazilian real estate market in this context, the most direct effect was limited to our economic policy, which maintained the basic interest rates still high for the long term segments (19% per annum). This attitude is not related exclusively to the Argentine crisis, but to other foreign difficulties.
The forecasts for this year are more favorable. We anticipate an increment on the order of 10% in the volume of units sold and real estate launchings. Various factors contribute to this perspective, particularly the perception that Brazil is one of the favored targets for foreign investments.
The recovery of the US economy is also encouraging, which signifies an increment in exports. Moreover, this is an election year in Brazil. There will inevitably be a greater level of economic activity, characterized by government investments, as is always the case during such periods.
In summary, we are not totally detached from the Argentine crisis. But, surely, better prepared to face this new turbulence.
Romeu Chap Chap is President of the São Paulo Association of Commercial and Residential Real Estate Management, Leasing, Selling and Purchasing Companies (SECOVI-SP) and Director President of Romeu Chap Chap Consultoria e Desenvolvimento Imobiliário Ltda. |
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