Policy Response of Brazilian Government to the 2008 Crisis: The Northeast Region Case.

This paper aims to evaluate the effects of macroeconomic policy between 2007 and 2011 in the Northeast Region of Brazil, which is the most impoverished region of the country. It focus specifically on monetary and credit policies. The reason for this study stems from the observation that the Brazilian economy did not show the same upward trend of unemployment rates that were recorded in the major countries of the Northern Hemisphere in the aftermath of the 2008 crisis. The countercyclical monetary and credit policies seem to have contributed to maintaining employment levels, revealing that the Brazilian banking system had more strict regulations than comparable ones in the U.S. The Brazilian Central Bank has generated the necessary liquidity to the financial system’s agents, especially in the Northeast Region, where credit was expanded more intensively. An analysis of the increased volume of regional credit reveals how the financial sector acted in the Northeast Region. First, the data shows that the BNDES (Banco Nacional de Desenvolvimento Econ mico e Social), an essential player to increase the volume of long-term credit in the National Financial System, was not responsible for the trajectory of credit in Northeast Region. Second, the Bank of Brazil and the CEF (Caixa Econ mica Federal - specializing in real state credit), two major Brazilian publics banks, raised more deposits than they made loans in the region between 2008 and 2011. Third, BNB (Banco do Nordeste do Brasil) and FNE (a Constitutional Fund for Financing of the Northeast Region, administrated by BNB) were the drivers of the countercyclical policy in the Northeast Region (concerning credit). The expansion of long-term credit was due to the action of these institutions (BNB + FNE). In fact, with regard to rural credit, BNB, with its own resources and managing of the FNE, amounts to 75% of total loans in the Northeast Region. The conclusion of this article, as a normative proposition for the federal economic policy, is that in order to decrease regional poverty in Brazil, it is necessary to implement, not only a social policy program, but also a decentralized and regional administration of loans by public banks (BNDES, CEF and BB).