Guest post: from ideology to policy in Brazil?

Monica Baumgarten de Bolle – Financial Times, 11/26/2014

Monica Baumgarten de Bolle is a Global Fellow with the Brazil Institute.

President Dilma Rousseff’s soon to be announced new finance minister may mark an important shift in Brazil’s faltering macroeconomic framework: From the ill-fated experimentalism that culminated in the so-called “New Economic Matrix”, brain child of Minister Guido Mantega, to newfound orthodoxy. From a failed model based more on ideology than economics to more rational policymaking, this is what one should expect from Joaquim Levy’s appointment, widely expected to be confirmed on Thursday. How long it all lasts is another matter altogether.

Levy has been hailed as a representative of the private sector, someone who would bring much needed pragmatic thinking to the government. Although he has been at the helm of one of Brazil’s largest private banks, Levy is more of a policymaker than a banker, as his background clearly shows.

After completing his PhD at the University of Chicago, he spent many years at the IMF in the volatile 1990s. During this time, he went on a six-month assignment at the nascent European Central Bank. While at the IMF, he worked closely with Teresa Ter-Minassian, former mission chief to Brazil and former head of the institution’s Fiscal Affairs Department. After returning to Brazil, he went on to hold many key government positions, including Secretary of the Treasury under President Luis Inácio Lula da Silva. At that time, he was both formulator and executor of Brazil’s serial primary surpluses, annually upwards of 3 per cent of GDP. This helped deliver both a significant decline in the country’s debt to GDP ratio, and Brazil’s attainment of an investment grade credit rating in 2008.

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The $31 Billion Bet Against Brazil’s New Finance Minister

Ye Xie and Filipe Pacheco – Bloomberg, 11/24/2014

Whoever is tapped by Brazilian President Dilma Rousseff to oversee the government’s finances in her second term, one thing is clear: There’s plenty of work to be done to win over currency investors.

While the real gained the most in three weeks on Nov. 21 amid optimism the looming cabinet shuffle will help shore up Brazil’s economy, foreigners are betting on more declines after the currency weakened to a nine-year low this month. Overseas holdings of futures contracts wagering against the real have soared 30 percent since Sept. 29 to $31.3 billion as of last week, according to data compiled by the Sao Paulo bourse. That’s just 8.6 percent shy of August’s record high.

A surge in government spending, coupled with Rousseff’s intervention in Latin America’s biggest economy, has left Brazil with its widest budget deficit in a decade and near-zero growth. Options traders are more bearish on the real than on any of its major peers.

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Mantega Says Using Brazil Wealth Fund to Cover Budget Legitimate

Mario Sergio Lima – Bloomberg, 9/23/2014

Brazilian Finance Minister Guido Mantega defended today the use of the country’s sovereign fund to help meet fiscal targets in a year when Latin America’s biggest economy had its debt rating downgraded.

Brazil announced it will withdraw 3.5 billion reais ($1.45 billion) from the sovereign fund to cover spending. The primary surplus, which excludes interest payments, was 1.22 percent of gross domestic product in the year through July, compared with the 1.9 percent target.

“The sovereign fund is a primary savings account we created in 2008 and is perfectly usable,” Mantega told reporters today in Brasilia. “Nothing is more legitimate than using that fund to cover part of expenses.”

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Brazil Finance Minister Seen Stepping Down

Paulo Trevisani – The Wall Street Journal, 9/5/2014

No matter who wins Brazil’s October elections, one thing has become clear: the man who oversaw an economic boom turned bust is likely to depart.

Guido Mantega’s eight-year stretch as Brazilian finance minister is seen ending whether frontrunner Marina Silva, the Socialist candidate, beats President Dilma Rousseff, or not.

Ms. Rousseff, in response to polls showing she would lose a potential second-round runoff to Ms. Silva, said this week that if she was re-elected, she would assemble a new team. Her comments were widely seen as a confirmation that Mr. Mantega, one of the longest-serving finance ministers ever, is on his way out.

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Brazil’s Rousseff – If re-elected, ‘new government, new team’

Caroline Stauffer – Reuters, 9/5/2014

Brazil’s president Dilma Rousseff said she would make changes in her cabinet if elected for a second term after a reporter asked her on Thursday if she planned to replace Finance Minister Guido Mantega.

But Rousseff said she would not name her future ministers unless she is re-elected in an apparent jab at opponent Aecio Neves, who has already said former central bankgovernor Arminio Fraga would be his finance minister.

“New government, new team, I have no doubt about that,” she said while campaigning in the northern city of Fortaleza. “There is one thing I don’t do – I don’t appoint ministers… I think that is wrong… I was not (yet) elected.”

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Better than Ukraine

The Economist (print edition), 9/6/2014

“We are not in a recession,” insisted Guido Mantega, Brazil’s finance minister, on August 29th. According to the most common definition—two consecutive quarters of falling output—he is wrong. Official figures released earlier that day showed that GDP fell by 0.6% between the first and second quarters (an annualised contraction of 2.4%). Output also fell, by 0.2%, in the first three months of the year.

Brazil’s economy has now shrunk in three of the last four quarters. Most analysts think it will not grow at all this year; a year ago they were expecting growth of 3%. In 2015 the economy is likely to expand by only 1%. Not even Mr Mantega can deny that Brazil is going through a rough patch.

The government blames a weak global recovery from the financial crisis of 2008-09 and a surfeit of public holidays during the month-long football World Cup, which concluded in Brazil on July 13th. These were decreed by federal, state and municipal authorities to ease pressure on public transport as hordes of fans descended on host cities. Itaú, a big Brazilian bank, reckons fewer working days account for half the latest fall in GDP. (Critics note that the Copa was meant to be an economic boon, not a curse.) Industrial production picked up in July, with its fewer feriados—but not nearly enough to offset June’s 1.4% decline. Inventories remain uncomfortably high: carmakers’ stocks, for instance, are 50% bigger than usual.

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Brazil’s Mantega says opposition win could wreck economy

Alonso Soto – Reuters, 8/28/2014

Brazil’s finance minister waded into the country’s presidential campaign on Thursday, warning that an opposition victory in the October election could push the economy into recession and undo a decade of social gains under the ruling Workers’ Party.

The comments by Guido Mantega, which the opposition and some analysts criticized as unbecoming of a sitting finance minister, came on the eve of the release of official data that is expected to show that Brazil, Latin America’s largest economy, is already in recession.

Brazil’s once high-flying economy has slowed sharply in the last four years under President Dilma Rousseff, complicating her chances for re-election in October. Growth is now at a crawl, inflation is running high, and business confidence has evaporated, discouraging investment.

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