The first few times I went shopping here I was rather puzzled by the price labels for items like shoes, clothing, electrical goods etc. Often they seemed very cheap and sometimes extraordinarily cheap. Finally I realised that the amount was not the actual price but the monthly installments.
A pair of shoes might be marked as costing R$30. Closer inspection showed that this was to be paid over three months. Sometimes a cash price of R$90 might be displayed in smaller letters. A TV might be priced at R$100 and a much nicer one priced at R$110. You have to work out that the first one has six installments totaling R$600 while the other has 10 installments making the cost R$1100.
It is all a bit confusing. I was amazed that things like medicines and quite ordinary clothing could be bought like this. Probably some items are discarded or consumed before they are paid for. The payment is usually by credit/debit card and the monthly statements will say something like “this is the third of six payments”. I guess that the trader can receive a lessor full payment quite quickly and the credit card company provides the finance. Strangely the traders rarely offer a discount or advertise a lower price for cash. Often they will take a series of post-dated cheques – the only security for these seems to be that you write a phone number on the back.
Credit cards are accepted far more widely than in Europe and are used extensively. Quite small restaurants, market traders and other small businesses routinely have wireless card verification systems. Supermarkets all accept credit cards. Unlike any card I have ever had the cards are both credit and debit. When you offer the card they always ask which you want to use. The answer is always credit.
It is only in recent years that personal credit has been easily available in Brazil and there has been spectacular growth. This has fueled the growth in the economy and is part of reason for such a successful economy. I cannot help wondering how Brazil will cope with the next down cycle in the economy. Everything is wonderful now with commodity prices breaking all records, exports of minerals and agricultural products booming and production of oil and ethanol gasoline substitutes making the country almost self sufficient for energy. I am not the only one wondering about this.
There will come a time when the markets realise that the banks have vast sums invested in consumer credit that are not likely to be repaid. The story of “The Emperer’s New Clothes is repeated endlessly around the world. The US savings and loans crisis of the late 1980s and the current American banking crisis which is badly affecting the British banks which bought their mortgage books were both due to insane lending policies. The Spanish banks rather cleverly avoided them only because they were busy digging their own hole in which to collapse.
There is no reason to believe that Brazilian banks are any less blinkered that their overseas cousins when it comes to favouring short term profits at the expense of the long term. There is still plenty of scope to make money investing in Brazilian banking shares. Reality has never mattered when investing, it is only the perception that counts. At some stage someone will be heard shouting that the emperor has no clothes, the market will instantly realise it is true and the share prices will collapse.
The trick, of course, is to to have sold out the day before the collapse. By then it might even be a good idea to invest in an American or European bank.
