Brazilian Manufacturers Slightly Relieved - Analyst Blog

In an effort to enhance the economy, the Brazilian Government recently announced a reduction in Long-Term Interest Rate (TJLP) and Tax on Industrialized Products (IPI) until the end of 2009.

TJLP, which provides a reference for loans by the Brazilian Development Bank (BNDES) to companies, will drop from 6.5% to 6% a year. Again, IPI will be lowered for 70 items manufactured by the machinery and equipment industry, including wind energy generators, industrial freezers and industrial valves. In 2009, BNDES plans to provide R$120 billion (US$ 61 billion) to enhance economic growth and increase investment in companies.

In order to boost sales in the capital goods industry, the government has reduced the cost of financing purchase of capital goods in the country. The lines of credit to finance capital goods will now see a 5.5% lower interest rate.

Two credit guarantee funds will be established for the purchase of capital goods by medium and small companies, which will be managed by the BNDES and the Bank of Brazil. They will receive R$4 billion (US$ 2 billion) from the Federal Government and ensure up to 80% and some times up to 100% of operations.

An increase in consumer spending will benefit small-and medium-sized businesses in Brazil. Thus, many companies would stand to benefit. These include home appliances retailer Companhia Brasileira de Distribuicao (CBD), aircraft manufacturer Empresa Brasileira de Aeronautica S.A. (ERJ), cement maker CEMEX S.A. de C.V. (CX), iron ore producer Companhia Vale do Rio Doce (VALE), steel maker Gerdau S.A. (GGB), builder Gafisa (GFA) and state-owned steel producer Companhia Siderurgica Nacional (SID).