Brazil’s shock therapy against inflation

March 3, 2015

Silvio Cascione – Reuters, 3/3/2015

Brazil’s central bank’s two-day policy meeting kicks off later on Tuesday with all bets placed on a fourth straight interest rate increase, despite growing consensus that the country is headed for its worst economic recession in 25 years.

The benchmark interest rate, currently at an already-high 12.25 percent, is expected by the wide majority of 48 economists polled by Reuters to reach the highest in six years at 12.75 percent. Other increases are in the pipeline, and some say the Selic rate could climb to as much as 13.75 percent this year.

Monetary tightening is just one side of Brazil’s all-out war on price rises. Finance Minister Joaquim Levy, tasked by President Dilma Rousseff to plug a growing budget deficit, has already frozen dozens of billions of dollars in government spending, removing one of the major pressures over consumer prices in recent years.

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Brazil Mid-Month Inflation Quickens More Than Forecast

February 24, 2015

David Biller – Bloomberg Business, 2/24/2015

Brazil’s inflation in the month through mid-February quickened more than economists estimated, as the central bank continues to raise rates in the world’s second-biggest emerging market.

Inflation as measured by the benchmark IPCA-15 index accelerated to 1.33 percent from 0.89 percent a month earlier, the national statistics agency said on its website today. That was the fastest rate since February 2003 and above the median 1.30 percent forecast from 41 analysts surveyed by Bloomberg. Annual inflation sped up to 7.36 percent from 6.69 percent.

Policy makers in Brazil are caught between the fastest annual inflation in nearly 10 years and gross domestic product that analysts estimate will contract in 2015. The latter limits the scope for Finance Minister Joaquim Levy and central bank directors to tighten fiscal and monetary policy to slow above-target inflation, which is damping consumer confidence.

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Brazil’s foreign policy is in the dark

February 20, 2015

Robert Muggah – Open Democracy, 2/20/2015

If ever there was a good time for Brazil to assume more global responsibility in foreign affairs now would be it. Dangerous armed conflicts, health pandemics and climate change warrant assertive engagement from the world´s major players, including South America´s powerhouse. Brazil could play a critical role in promoting stability in an uncertain world. Worryingly, the country is nowhere to be seen.

Brazilian foreign policy is in the dark. Part of the problem is that its leaders are distracted. This is maybe not altogether surprising: the country’s economy is in the doldrums. Brazil’ new finance minister, Joaquim Levy, described Brazil´s economic prospects in 2015 as “almost flat”. Brazil is now one of the Fragile Five, alongside Indonesia, Russia, South Africa and Turkey. Unprecedented bribery scandals involving the national oil company, Petrobras, and a host of construction firms, will likely tip the already damaged economy into a recession.

Some Brazilian commentators resist a more activist foreign policy. They are understandably preoccupied with making critical reforms at home to increase productivity and competitiveness rather than promoting Brazilian interests abroad. But this is a false choice: domestic reform should not come at the expense of foreign policy. On the contrary. Brazil urgently needs to bolster its strategic interests in its own neighborhood and beyond.

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Brazil’s Levy tells investors fiscal adjustment to correct ‘slippage’

February 19, 2015

Herbert Lash – Reuters, 2/18/2015

Brazil is removing the last vestiges of tax cuts and government spending aimed at bolstering the economy as officials work to correct the fiscal slippage of the last few years, Finance Minister Joaquim Levy told investors on Wednesday.

Levy said that the government of President Dilma Rousseff will work to meet its primary budget surplus goal of 1.2 percent of gross domestic product in 2015.

“We are just taking these anti-cyclical measures away, and this will put us on better footing,” Levy said in his first public address to investors in the United States.

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Rousseff’s austerity plan for Brazil runs into trouble with allies

February 13, 2015

Anthony Boadle and Alonso Soto – Reuters, 2/13/2015

President Dilma Rousseff’s austerity push has run into stiff opposition from her own allies in Congress that could derail her efforts to restore Brazil’s fiscal credibility and avoid a damaging credit rating downgrade.

The leftist leader’s allies, including members of her own Workers’ Party, are seeking to water down a first batch of unpopular bills that trim unemployment and pension benefits and save some 18 billion reais ($6.32 billion).

The bills are part of an austerity drive led by Finance Minister Joaquim Levy, a fiscal conservative picked by Rousseff to plug a growing public-sector deficit with spending cuts and tax hikes aimed at saving the once booming economy’s coveted investment grade.

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Brazil’s Budget Disarray Shocks Bondholders Backing Levy

February 5, 2015

David Biller – Bloomberg Business, 2/3/2015

Bond investors have been fretting for months about Brazil’s deteriorating finances. Last week, they learned things are far worse than they’d imagined.

The government said Jan. 30 that it posted the nation’s biggest-ever budget deficit in 2014 after a shortfall in December that was twice as big as analysts had forecast.

The report laid bare the scale of the challenges facing Finance Minister Joaquim Levy, who is seeking to ward off a downgrade to junk and restore investor confidence in Latin America’s biggest economy. After rebounding to a five-year high as Levy boosted taxes and cut spending earlier this year, the nation’s local bonds have now dropped 1.3 percent since Jan. 30, 43 times the emerging-market average.

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Brazil FinMin Levy An ‘Island In Sea Of Mediocrity’

January 27, 2015

Kenneth Rapoza – Forbes, 1/24/2015

Brazil’s new Finance Minister Joaquim Levy is an island in a sea of mediocrity, says ex-Central Banker Arminio Fraga in an interview this weekend with Brazilian daily Estado de Sao Paulo. The FinMin job almost belonged to Fraga. But his chosen horse didn’t win the race in October. Instead, beleaguered Workers’ Party president Dilma Rousseff won in a squeaker and replaced Guido Mantega, not a market favorite during his tenure as Finance Minister, with Levy, who is already a market favorite.

Levy, an ex-Treasury secretary under Dilma’s predecessor, Luiz Inacio Lula da Silva, is taking an sledgehammer to Dilma’s populist policies of the last four years.

Investors like life on Levy Island, but sea great white shark fins everywhere. This is no day at the beach for the Brazilian economy. High interest rates (12.25%) and high inflation (6.41%) have turned off investors. The iShares MSCI Brazil (EWZ) exchange traded fund, which basically tracks the iBovespa stock index in São Paulo, is underperforming the MSCI Emerging Markets Index year to date. Even sanctioned Russia’s equity market is doing better than Brazil.

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