For anyone concerned with investment opportunities in Brazil, recent events involving both the President and the Banks are obviously very worrying. Hopefully, the situation will be resolved fairly quickly but in the meantime the strained relationship will cause stresses the country could do without especially since short term investments account for a large percentage of the total investment revenue in the country.

The crux of the problem is the recent document issued by Rubens Sardenberg, the Chief Economist at Febraban, the Brazilian Federation of Banks. The paper called into question the Government policy of lower interest rates and whether it actually would produce (or permit) an increase in the supply of credit for the Nation. Sardenberg effectively said that the expansion of credit has severe inbuilt risks, not least of which is the high level of default in such situations.

Brazil's President Dilma Rousseff took exception to all this and the potential implied loss of confidence in her Government. This was especially so as only last week leading banks assured the President that they approved the overall goal of interest rate reduction and all that it implied. She, through the Finance Ministry, has therefore demanded an apology from Febraban.The organisation responded quickly, stating that Mr. Sardenberg was giving his own opinion in his statement and not speaking on behalf of the group or any of its members.

For President Dilma and her administration, this disagreement seems more than just a minor 'storm in a teacup'. They take it altogether more seriously as, among other things, this is not the first or only spate between the Banking Federation and the Government. A previous clash was as recently as the beginning of April when Murilo Portugal (President of Febraban) issued a statement directed towards the Government stating (some say high-handedly) that from now on ‘the ball is in their court’, implying that Febraban expected compliance from the State, rather than the other way round.

Since this current crisis erupted, President Dilma has been having discussions this week with her Economists and financiers, notably Guido Mantega her Minister of Finance. Ms. Rousseff has made it clear that no further 'actions' of this kind will be tolerated and demanded that Febraban backs down. Hence the Federation’s statement, together with individual banks that this recent issue was not of their collective doing. The Government seems not entirely convinced, evidenced by the fact that they still continue to pursue the matter, after all extending credit to various classes of people can be of benefit, they feel, if handled carefully. For example, it’s only in recent years that domestic mortgages have been made available to ordinary people of modest incomes. In the 'Minha Casa Minha Vida' social housing scheme which incorporates this, for the first time ever, millions of people will now be able to afford homes of their own.

Clearly the overall question of the balance between credit, interest rates for borrowers and interest rates for lenders is an important one and could effect people wishing to invest in Brazil. Moreover, the current squabble between the Government of Brazil and an important economic spokesman is one not expected to boost confidence in the administration, either for those seeking long term investment in the country, or just short term investment.