UPDATE 2-Brazil posts biggest dollar outflow in over a decade

Wed Jan 8, 2014 1:06pm EST

By Walter Brandimarte and Tiago Pariz

RIO DE JANEIRO Jan 8 (Reuters) - Brazil recorded a net foreign exchange outflow of $12.3 billion in 2013, the first negative result since the global financial crisis in 2008, and the worst deficit since investors panicked over the election of President Luiz Inacio Lula da Silva in 2002, central bank data showed on Wednesday.

As Brazilians continued to buy imported goods and travel abroad, while foreign investment dwindled and exports slid, the foreign currency deficit ballooned last year, helping the real currency to lose more than 13 percent in value.

Not too long after complaining about a "tsunami" of dollars flooding the Brazilian economy, President Dilma Rousseff now faces a struggle to attract enough foreign investment to boost the economy and finance a widening current account deficit.

Dollars are also needed to stabilize the real, which is expected to further weaken this year, potentially fueling inflation.

The deficit was the result of a sizable $23.4 billion outflow in the country's financial account, which includes foreign direct and portfolio investment. Many investors have been reluctant to invest in Brazil due to what they consider erratic government policies.

The trade account, meanwhile, recorded a modest net inflow of $11.1 billion as Brazil's trade surplus fell in 2013 to its lowest level since 2000.

"The international scenario is more complex for Brazil and other emerging market countries," said Rafael Bistafa, an economist at Rosenberg & Associados, a consultancy in Sao Paulo. "But that does not mean we have a capital flight, nor is such the outlook for Brazil going forward."

Bistafa forecasts that Brazil will have "persistent and moderate" dollar outflows through 2014, when a presidential election in October could add to market volatility.

The 2013 foreign-exchange deficit compares with a net surplus of $16.7 billion in 2012 and a whopping $65.3 billion surplus in 2011, when the real gained to nearly 1.5 per dollar. Earlier this year, the currency weakened to 2.4 per dollar.

In 2008, when investors fled emerging markets during the global financial crisis, Brazil posted a net forex outflow of $983 million. In 2002, when investors feared the policies of Lula's first government, nearly $13 billion left the country.

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