Reuters: US Dollar Report: UPDATE 2-Foreign investment in Brazil up despite global gloom

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UPDATE 2-Foreign investment in Brazil up despite global gloom Jul 24th 2012, 19:41 Tue Jul 24, 2012 3:41pm EDT * Foreign direct investment jumps in June, outlook strong * Brazil confident FDI will cover 2012 current account gap * Gov't racing to bolster investment to fight slowdown By Alonso Soto and Tiago Pariz BRASILIA, July 24 (Reuters) - A rebound in Brazil's foreign direct investment in June fully covered a widening current account deficit, central bank data showed on Tuesday, underscoring the resilience of foreign investment even as the international and local economy slow sharply. Brazil posted a current account deficit of $4.419 billion in June, slightly above market analysts median forecast of $4.8 billion. The figure also surpassed the $3.47 billion gap posted in May. The current account is a broad measure of a country's foreign transactions, including trade in goods and services, interest payments, and profits and worker remittances. The June current account deficit was covered by incoming investments from abroad. Foreign direct investment, after slowing in recent months, rose to $5.822 billion in June from $3.716 billion in May, the central bank said. Analysts said the increase indicates that interest in Latin America's biggest economy remains strong among foreign investors, even as the country's recent boom fades amid the crisis in Europe and economic uncertainty elsewhere around the globe. "This is a sign that foreign companies are still seeing Brazil as a country with good prospects," wrote analysts at LCA Consultores, a consultancy in Sao Paulo. Continued interest, they added, suggests that investors may see lower growth in Brazil as a "cyclical" issue because of the global economy -- not deeper "structural" issues related to weaknesses in Brazil itself. The Brazilian economy has been in the doldrums since the middle of last year. In addition to the turmoil abroad, once-booming growth has slowed to a near standstill because of previous government efforts to manage inflation and the ongoing struggles of Brazilian industries, which have buckled in recent years as a strong currency has made them less competitive against foreign competitors. On Tuesday, the troubles in Europe continued to ravage investor confidence worldwide, as fears mounted that Spain could be forced to ask for a full-fledged bailout. Still, the troubles haven't deterred foreign investments in Brazil. FDI, the central bank said, is expected to continue climbing in July to about $7 billion. As in June, the central bank expects foreign investment for the year to fully make up for an expected current account gap of $56 billion. Already, Brazil in the first half of the year has reached 60 percent of its 2012 foreign direct investment target of $50 billion. Central bank chief Alexandre Tombini on Monday said foreign investors will continue to pour into Brazil to get in on the ongoing development of the massive offshore oil reserves and billions of dollars in contracts for stadiums, airport terminals, and other much-needed infrastructure ahead of the 2014 World Cup of soccer and 2016 Olympics. "The government is focused on incentivizing investment," Tombini said in a conference call prior to a trip to London to woo foreign investors. Worried by the slowdown, President Dilma Rousseff is focused on steps the government hopes can help jumpstart investment. In addition to a plan to cut taxes that would lower the country's high energy costs, expected as early as August, the government is considering plans to sell concessions for private investors to help manage airports, seaports, and other crucial infrastructure. Such plans are considered vital if Brazil is to overcome some of the hurdles that have long held back greater investment, economists say. Despite the healthy interest from foreign investors in recent years, investment as a whole in Brazil still lags far behind that in many other major developing economies. Investment in Brazil amounts to just 19 percent of its gross domestic product, compared with as much as 45 percent in China and 35 percent in India. In a recent evaluation of Brazil's economy, the International Monetary Fund noted its recent progress, but warned that Brazil should do far more to foster savings and investment. Tombini, the central bank chief, has sought to help the process by pushing Brazil's benchmark interest rate to its current level of 8 percent, a historical low. Link this Share this Digg this Email Reprints

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