Brazilian institutions have responded well to political crisis

Lee Alston – Financial Times, 11/15/2015

Bullish on Brazil — really? The Brazilian currency has fallen more than 30 per cent in a year. Interest rates are at 15 per cent, 9 percentage points of which are gobbled up by inflation. Unemployment is climbing. The economy is shrinking. And if that were not enough, Brazil is also suffering its biggest-ever corruption scandal.

Petrobras, the state-owned energy company, admitted to losses of R$6bn ($1.6bn); the federal police puts the figure far higher. The affair has weakened an already indecisive president. Since her re-election last year, Dilma Rousseff has lost control of her government coalition and of much of her own Workers’ party. Her approval rating has sunk to 8 per cent — lower even than the 9 per cent rating of former president Fernando Collor de Mello just before he left office under duress in 1992. Ms Rousseff may yet face a similar fate; in a move that could presage impeachment, the federal budget watchdog , the TCU, rejected the government’s 2014 accounts.

Brazil’s condition does look bad. Yet some things have turned out better than expected. The government has made a credible move to stabilise markets, appointing as finance minister Joaquim Levy — a no-nonsense fiscal conservative. His aim is to return Brazil to policies that support social inclusion without imperilling public finances. Rumours abound that Henrique Meirelles, former head of the central bank and equally opposed to inflation, may replace Mr Levy. Mr Meirelles may be more effective because he has former president Luiz Inácio Lula da Silva’s blessing. No matter how much Ms Rousseff, her party or their coalition dislike the idea of a painful fiscal adjustment, the view that this is the only way to go has prevailed.

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