Brazil’s Worrying Change of Finance Ministers

The Economist, 12/19/2015

When he became Brazil’s finance minister a year ago, Joaquim Levy (pictured left) faced an impossible task. He had to close an enormous budget deficit, avert the loss of Brazil’s investment-grade credit rating and reverse the heavy-handed economic interventionism practised by his boss, Dilma Rousseff, during her first term as president from 2011 to 2014. To make matters more difficult, Brazil was entering its worst recession in decades. A vast bribery scandal had already destroyed the credibility of the president’s party, the left-wing Workers’ Party (PT). Ms Rousseff’s approval ratings have since fallen to single digits and she faces impeachment proceedings for breaking budget-accounting laws. Many finance ministers would have given up long ago. Mr Levy lasted until December 18th, when he resigned and was replaced by the planning minister, Nelson Barbosa (pictured right).

That change is likely to make a terrible situation worse. It suggests that Mr Levy lost an argument within the government about whether austerity is the right cure for Brazil’s sickly economy, and that he lost it not because his economic remedy was wrong but because it was politically unpalatable.

Mr Levy and his team “did everything that was asked of us,” he told journalists hours before his resignation was made public. It would be truer to say that he tried valiantly and failed. Dubbed “Scissor Hands” after his first stint as a senior treasury official in 2003-06, he managed to cut discretionary spending in 2015 by a record 70 billion reais ($18 billion). Yet without the co-operation of Congress, which had no interest in helping an unpopular president, he could do little to the nine-tenths of government expenditure that is ring-fenced. On December 16th Fitch became the second credit-rating agency to downgrade Brazil’s debt to junk status.

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