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Weakening Real Threatens Brazil’s Gains on Amazon Deforestation

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Dec. 3 (Bloomberg) -- The world’s biggest currency slide is threatening the gains that Brazil has made in combating deforestation in the Amazon, according to an ecologist at the National Institute for Amazon Research.

The real’s 9.7 percent drop in the past six months to 2.3537 per dollar, the worst performance among 16 major currencies tracked by Bloomberg, means bigger profits can be made from converting rainforest into farms or ranches to export commodities, Philip Fearnside said in an interview yesterday at his office in Manaus, Brazil. A weaker currency swells revenue for exporters that sell their goods for dollars.

Deforestation of the Amazon rose from a 24-year low this year, according to Brazil’s space agency, which tracks the data with satellite photographs. The real gained 55 percent from 2004 through 2011, the best performance among major currencies, as falling interest rates bolstered economic growth.

“Most of the reduction in deforestation since 2004 was explained by soybean and beef prices and due to the exchange rate,” said Fearnside, who holds a doctorate in ecology from the University of Michigan. “If you were exporting soybeans, and you had expenses in reais and were paid in dollars, you were getting back half as much as before due to the strengthening of the real. Now, with the real at 2.3 per dollar, the business has become more profitable than when it was at 1.5 per dollar.”

Satellite data for the 12 months ended in July showed deforestation in the Amazon region, which is the size of Western Europe, rose 28 percent from a year earlier. Total land cleared reached 2,256 square miles (5,843 square kilometers), almost the size of the U.S. state of Delaware, according to data from the country’s space agency released last month.

Credit Rating

The real dropped this year amid reduced growth forecasts and as Standard & Poor’s and Moody’s Investors Service cut the outlook on the country’s investment grade rating.

Environment Minister Izabella Teixeira said last month that the increase in deforestation was driven by illegal land clearings in Para and Mato Grosso do Sul states.

“The government will not accept any increase,” she said in Brasilia on Nov. 14, according to a statement on the ministry’s website. “There is no way we will allow these illegal deforestations to be normalized.”

To contact the reporter on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net

To contact the editor responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net

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