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SAO PAULO : Once one of the most promising emerging markets, Brazil is now trembling from the effects of the global financial crisis after seeing nearly a third of the value of its currency wiped out in just two months.
On Friday, the money, the real, was trading at 2.26 to the dollar.
That was far lower than the 1.558 it fetched on August 1, when investors had been piling into the market and the economy was booming on high consumer demand and flourishing exports.
Frantic selling of dollar reserves and auctions of dollars by the central bank to shore up the currency this week managed to stem the slide for two days, but then market wariness over emerging-market risk took over again on Friday.
On the upside, the weakening real will make Brazilian exports cheaper. So far this year, the country has earned 151 billion dollars from exports, a 29 percent increase over the same period last year.
But Brazilian industry warned that the cut in demand for the exports because of the global slowdown would outweigh that benefit.
"To put our foot on the accelerator now would be an error," said Rubens Barbosa of the trade council of the Federation of Industry for Brazil's most economically vital state of Sao Paulo.
The head of the Exporters' Association of Brazil, Jose Augusto de Castro, noted that 65 percent of Brazil's exports were commodities -- and "those prices are falling."
"In 2009, this fall will be felt because it will spread to all the commodities. The crisis will also weigh on manufactured goods. The dollar will climb and importing countries will buy less from us," he said.
Castro said the remaining export output for 2008 was already locked in through contracts signed before the crisis hit, but "new business has come to a halt" because companies do not know what exchange rate to apply.
Imports, which up to September totalled 131 billion dollars -- 52 percent more than for the same period in 2007 -- were set to fall precipitously.
Many in that sector were stunned because "the depreciation was so violent," said Lourival Kicula, from an association covering resellers of durable goods and electronics.
"We have to pause to evaluate the situation. Importers are wondering whether it's worth bringing in such-and-such a product," he said.
Brazilian consumers are also putting on the brakes.
Retail sales fell 1.3 percent last week compared to the same week last year, the Serasa consultancy firm said.
The crisis "has made bread and codfish buns in the bakery more expensive" because of hikes in the prices flour and fish, both of which are mostly imported into Brazil, an analyst, Ariverson Feltrin, told the Gazeta Mercantil financial daily.
President Luiz Inacio Lula da Silva has exhorted consumers to keep spending because "what is important is our domestic market," but his assurances that Brazil would weather the crisis looked increasingly overtaken by events.
The dramatic decline of the real has been shadowed by Brazilian equities.
The Ibovespa index on Latin America's biggest stock market was plumbing two year lows after successive falls wiped 42 percent off its point count.
The decline was attributable to investors fleeing the market to cover losses at home, and a loss of appetite for emerging-economy risk in such uncertain times.
- AFP /ls
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