Brazil President Dilma Rousseff has been showing her concerns about the unfolding crisis in Spain and fears that if the situation gets worse it can severely jeopardize the investments of Spanish companies in Brazil. Spanish companies in the country operate in energy (Iberdrola / Neoenergia), telecom (Telefonica), infrastructure  (OHL) and banking (Santander). According to the Central Bank, Spain was the third largest investor in Brazil last year with US$ 79.5 billion, preceded only by the Netherlands (US$ 169.5 billion) and the US (US$ 125.4 billion).

About a month ago Euromoney said the following about the situation: “If conditions in Spain deteriorate further and companies require more capital, Brazil could end up being the source for it. This could happen through higher profit and dividends outflows or actual sale of parts of those businesses in the country.” Santander has already started its Brazil assets sale, by the way.

In the first quarter, Spanish investments in Brazil were only US$ 739 million, a sharp drop compared to 2011 first quarter’s US$ 4.7 billion. The Brazilian government is so concerned that Dilma has been scheduled to meet with Spanish King Juan Carlos, when she intends to express her concerns about the future of Spanish investments in Brazil as well as to what may occur as a result of the remittance of profits of these local companies to their Spanish parents.

The Presidential Palace is monitoring the crisis in the euro area daily. If Greece leave the euro or if the Spanish banks’ issues get worse, the Brazilian government expects a lot of market tension which most likely will result in an abrupt halt in the flow of foreign credit to Brazil.

The only positive thing going for Brazil is that it has US$ 372 billion in foreign reserves to meet temporary shortages of foreign credit and US$ 393 billion in bank reserve requirements to inject liquidity in the domestic banking system, if necessary.

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