Paper short abstract:

Brazilian grow was anchored in the commodities, and, the trade surplus provided a framework for a monetary policy twist that favored subsidies. The result was in Brazil commodities boom was amplified due the securitization of its primary market, through government backed credit offer.

Paper long abstract:

In 2014, before the current recession, Brazil was the 3rd global commodities exporter. Its outstanding macroeconomic performance in the 2000s was anchored in the rise of commodities prices boosted by the emerging economies. Historically, due its comparative advantages in commodities, the country had a non interventionist policy in the industry.

The trade surplus created by commodities super-cycle provided a framework for a monetary policy twist that favored subsidies, through credit facilitation, expanding the primary industry. From oil importer in the 1990s to oil exporter in 2013, this twist was a game changer to the sector.

Since 2003 Brazilian subsidies to commodities have increased more than three times, through financing programs such PRONAF and BNDES policies. Moreover, commodities credit is controlled by Central Bank and 25% of all deposits were mandatory destined to commodities subsidies which are complemented by the SNCR, providing preferential loans to the sector.

Still, a third of all commodities operations are anchored in credit subsidies, reflecting the incentives to commodities sector that expanded Brazilian pre-salt exploitation and agriculture. Although, the financialization of commodities led to irrational exuberance, whereby Brazilian producers were remunarated 3% more than international prices. To understand the role of financialization of commodities in Brazil since 2003, when there was a shift of liberalization agenda towards interventionism, and, commodities become strategic due alliances with BRICS , it will be applied GFS-APT-GARCH, to understand irrational exuberance in inter-assets, as cause of amplification of super-cycle in the country due overextension of credit, contributing to the current recession