Brazil Current Account Gap Threatens Reserve Policy

Dec. 14 (Bloomberg) -- Brazil’s current account gap, which may more than double to a record next year, threatens the country’s policy of accumulating international currency reserves, said Luciano Coutinho, president of the National Development Bank.

“It’s worrisome,” Coutinho said in an event in Sao Paulo. “A deficit too far above 1.5 percent of gross domestic product is not very healthy.”

The deficit in the country’s current account, the broadest measure for goods and services trade, may reach a record $40 billion next year, according to the median forecast in a central bank survey of about 100 economists published today.

Brazil’s consumer-led recovery is boosting imports and fueling a wider current account deficit that may lead to a weakening of the real. The currency has rallied 32 percent this year, more than all 16 major currencies tracked by Bloomberg.

The currency rose 0.4 percent to 1.7520 per dollar at 10:37 a.m. New York time from 1.7585 on Dec. 11. Yields on interest rate future contracts were little changed.

The current account gap widened to $18.9 billion in the 12 months through October, or 1.32 percent of GDP, according to central bank figures.

Exchange Rate

The growing current account deficit will prevent the real from strengthening next year, according to the chief economist of Itau Unibanco Holding SA, Brazil’s largest bank by market value.

Ilan Goldfajn, a former central banker, expects the exchange rate to rise to 1.72 per dollar by year-end 2010 and reach 1.75 by the end of 2011 as the current account deficit rises to 3.3 percent in 2010 and 3.9 percent in 2011.

“In terms of equilibrium, this exchange rate doesn’t need to rise further,” he told reporters in Sao Paulo on Dec. 9.

The central bank has increased international reserves to a near record of $238 billion, up from $206 billion a year ago.

Brazil also needs to increase investment to between 23 percent and 24 percent of GDP in the next two to four years to sustain economic growth of 5 percent, Coutinho said.

“As the crisis ends, we need to look at long-term” financing needs, he said during a speech in Sao Paulo. “This is the only way of reconciling growth with sustainability.”

Funding priorities next year for the bank known as BNDES include investments in infrastructure, logistics and technological innovation, he said.

The rate of investment in the third quarter fell to 17.7 percent of GDP, down from 20.1 percent in the same three-month period in 2008, the national statistic agency said Dec. 10.

Investment jumped 6.5 percent in third quarter of 2009 from the previous three-month period.

Andre Soliani