Entrepreneurs, government officials, and sector experts review business opportunities between Brazil and the U.S.
05/16/2024
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/n/k/jMWGjOQeWWkKmocmcPkQ/summit-valor-galipolo.jpg)
Gabriel Galípolo, the Brazilian Central Bank’s Monetary Policy Director, alongside former Fed members James Bullard and Kevin Warsh — Foto: Vanessa Carvalho/Valor
Two significant events in the United States later this year—the potential start of the Federal Reserve’s interest rate cut cycle and the U.S. presidential elections—will shape the economic policy options of the Lula administration in the coming months. This topic was a key focus at the Summit Valor Econômico Brazil-USA held on Wednesday (16). The event, which took place at The Plaza Hotel in New York, gathered Brazilian and American businesspeople, government officials, and sector experts to discuss the challenges and main business opportunities between the two countries. It also marked the start of a series of activities celebrating Valor’s 25th anniversary, set to conclude in May next year. One goal of these events is to intensify international debates and deepen understanding of Brazilian realities and business prospects.
Frederic Kachar, the general director of Editora Globo and the Globo Radio System, commented, “We are an economy with one of the five largest trade balances in the world and a monetary policy committed to fighting inflation. However, we still face issues with the exchange rate. We have a clean energy mix, which truly sets us apart from the rest of the world, yet we are not a priority for investment, even by the United States.” He noted that the Brazilian economy has many attributes and differentials that should be more appreciated both domestically and internationally. The event’s eight panels explored ways these could be leveraged for sustainable growth.
On the fiscal side, the need to control spending was emphasized, as stated by Dario Durigan, the executive secretary of the Ministry of Finance. He noted that, alongside initiatives already underway since last year to restore revenues, further efforts to contain spending are necessary. However, Secretary Durigan cautioned that this must be balanced to avoid exacerbating political polarization in the country.
In terms of monetary policy, Gabriel Galípolo, the Central Bank’s monetary policy director, indicated a move towards greater cohesion and a more conservative strategy in response to the worsening inflationary scenario following a contentious vote in the Monetary Policy Committee (COPOM) that stirred market unease.
Additionally, the government faces challenges in mobilizing resources for emergency relief and rebuilding infrastructure in Rio Grande do Sul, which was severely damaged by heavy rains—an extreme weather event expected to become more frequent. This concern was echoed by many participants at the event, who emphasized the necessity of aid for the state.
“The need for aid in rebuilding, considering this new reality, is crucial,” stated Ilan Goldfajn, president of the Inter-American Development Bank (IDB), which is collaborating with the government on a R$5.5 billion rescue package for the state. “Countries must adapt and prepare to face what is coming.”
The anticipated start of the Federal Reserve’s monetary easing process continues to be delayed, contributing to rising international interest rates due to the increased need for the U.S. Treasury to finance its public deficit. This situation constrains the availability of capital for emerging economies. Kevin Warsh, a former Fed member and potential future head of the institution, stated that if Donald Trump wins the presidential elections again, “I don’t think there will be an interest rate cut until December, and I think that’s the right decision. I don’t see how the Federal Reserve could make cuts before that.”
The upcoming U.S. elections are expected to exacerbate political polarization, which could have similar effects globally and might lead to heightened protectionist measures within a divided geopolitical landscape. “Isolationism is present in both parties,” remarked Scott Jennings, a Republican Party strategist. “There is a multi-party isolationist movement.”
The ongoing political polarization further complicates achieving consensus on addressing the U.S. public deficit, which is increasingly necessary given the rise in public debt since the 2008 financial crisis and the likelihood of the Fed maintaining higher interest rates for a prolonged period. Mr. Warsh criticized the fiscal expansion under the Biden administration and the Fed’s initial misjudgment of inflation as temporary, stating, “The bigger the inflation problem, the more regressive the tax on the poor in the United States and around the world. The United States has an obligation to have responsible fiscal and monetary policies.”
Following a divided vote last week, Gabriel Galípolo, speaking publicly at the Summit Valor Econômico Brazil-USA for the first time since the vote, aimed to demonstrate a unified approach to monetary policy that might entail less easing than previously anticipated. He referenced a statement by Central Bank President Roberto Campos, emphasizing the importance of not debating but instead pursuing the target. “Discussing the pursuit of the target is a forbidden discussion for a Central Bank director. You don’t discuss the target. The target is pursued.”
Mr. Galípolo elaborated on last week’s COPOM meeting debate, which focused on whether to proceed with a signaled 50-basis-point cut in interest rates. New directors like himself argued for adhering to the signaled cuts to establish credibility with the market. “It’s up to the Central Bank’s directors to set interest rates at a sufficiently restrictive level for as long as it takes to meet the target,” he stated. He also mentioned considering a 20-bp drop and supported the majority’s technical argument for this decision.
The Summit Valor Econômico Brazil-USA, held with master sponsorship from Gulf and JBS and additional sponsorship from Gerdau, JHSF, Cedae, Copel, and Aegea, was supported by multiple government entities and featured Latam and Delta Airlines as the official carriers. The event was organized by Valor Econômico.
*Por Alex Ribeiro — New York
Source: Valor International