South American politicians and financiers believe that the global meltdown in capital markets should not take an immediate toll on foreign direct investment (FDI) flows to the region. Brazil expects to stay at the historic peak of inward FDI that it reached last year. “We can repeat the same performance,” Paulo Bernardo Silva, Brazilian planning minister, said in Miami.
Luiz Awazu Pereira, chief economic adviser at the Brazilian planning ministry, told Emerging Markets: “There has been no significant deterioration due to the international crisis. “We are currently projecting record levels of FDI. We had some $35 billion in foreign direct investment last year, I think that current trends in the initial months of the year point to a similar performance.”
Net flows of FDI to Latin America are due to remain strong this year, with an increase to $55.8 billion compared to $54.9 billion last year, the Institute of International Finance said. Meanwhile, overall private flows to the region are expected to remain stable at some $129 billion.
In Brazil, a repeat of last year’s whopping performance would be a confirmation of investor confidence in the economy, which posted 5.7% GDP growth last year. Strong flows are expected in key sectors, such the automotive, oil, steel and mining as well as retailing.
But the looming current account deficit has raised some concern in financial circles. “This will be the end of five years of current account surplus,” Marcelo Carvalho, chief economist at Morgan Stanley in Sao Paulo, said. “A 1% of GDP deficit [as predicted] may not be so big, but the concern is the pace of the deterioration. When risk aversion is rising, countries with current account deficit are those whose currencies suffer most.”
Net flows are due to remain strong this year, with an increase to $55.8 billion compared to $54.9 billion last year, the Institute of International Finance. Meanwhile, overall private flows to the region are expected to remain stable at some $129 billion.
But Brazilian officials have brushed off such concerns. “What is important is that the weakening of our current account is related to economic growth, including a strong increase of investment-related goods,” Pereira said. “This is positive in terms of potential growth.”
The small deficit is easily financed by strong FDI flows, officials said. Planning minister Silva said it would be an “injustice” if Brazil was not granted an investment grade status by credit rating agencies.
“Brazil was on the verge of getting it but apparently the international crisis has suspended the momentum,” he said before meeting with S&P officials yesterday. “A substantial part of the market already thinks that it would be timely.” Fitch Ratings upgraded Peru to investment grade last week. Meanwhile, substantial foreign direct investment is expected in other investor-friendly countries such as Colombia.