UPDATE 3-Brazil sees no recession, readies new credit lines

Thu Oct 30, 2008 1:24pm EDT
(Adds central bank comment, paragraphs 9-10)
By Isabel Versiani
BRASILIA, Oct 30 (Reuters) - Brazil's top economic officials said on Thursday the global financial crisis will not push the country into a recession and that the central bank would unveil new credit measures for exporters suffering from a liquidity crunch.
"For now, activity levels haven't come down," Finance Minister Guido Mantega told the Senate's Economic Affairs Committee. "I believe there will be a slowdown in consumption and in activity level in Brazil. But we will not have a recession."
The global credit crisis has battered local financial markets, hurt companies that made wrong bets in currency derivatives, and dried up credit lines for exporters, who are also struggling with falling commodity prices.
The central bank has taken a series of measures in recent months to minimize the impact of the crisis on Latin America's biggest economy and to ease a liquidity crunch prompted by risk-averse investors shunning emerging market assets.
The latest central bank move is aimed at helping exporters.
Central Bank President Henrique Meirelles told senators that the new loans will be made directly to exporters and will use foreign exchange contracts the exporters have with local banks as collateral.
He added that trade finance lines to Brazilian exporters fell "abruptly and very strongly" right after the collapse in September of U.S. investment bank Lehman Brothers Holding Inc, which also marked a sharp deterioration of the crisis.
He said the central bank moves in the foreign exchange market have started to "normalize" the volume of dollars available for exporters.
The bank may add measures to improve the liquidity of small- and medium-sized banks that have been hit particularly hard by the liquidity crunch. Those firms have benefited recently from a series of changes in reserve requirements that are expected to free up as much as 100 billion reais into the banking system.
"We are contemplating additional measures so that these funds (from reserve requirements) get to the smaller banks and all the way to loan market," Meirelles told the senate committee.
The central bank has held daily currency swap auctions and has sold dollars regularly on the spot market in recent weeks to help with a scarcity of dollars that has dragged the national currency, the real BRBY, 15.7 percent lower against the greenback so far this year.
There are signs Brazil has started to feel the pinch of the global economic crisis despite government reassurances that the country is better placed than ever to face the turmoil.
A handful of leading Brazilian companies have announced billions of reais in currency losses over the past weeks, including food processor Sadia (SDIA4.SA: Quote, Profile, Research, Stock Buzz), pulp producer Aracruz (ARCZ6.SA: Quote, Profile, Research, Stock Buzz) and industrial conglomerate Votorantim.
Brazil's stock market has also been battered in recent months, with the main Bovespa index .BVSP tumbling more than 40 percent this year. The Bovespa was up 5.3 percent on Thursday.
But Mantega said the derivatives problem was easing and that Brazil should end 2008 with "a very comfortable position" in its fiscal accounts. He said the government planned no new budget cuts for now.
"Solid companies went through this specific problem... some liquidated their positions," Mantega said. "So this problem is on track to be solved."
President Luiz Inacio Lula da Silva recently said the government may have to cut government spending if the financial crisis has a broader impact on Brazil. (Additional reporting by Elzio Barreto; Writing by Ana Nicolaci da Costa; Editing by Leslie Adler)