Brazil’s Barbosa vows fiscal discipline but markets edgy

BRASILIA/SAO PAULO: Brazil’s incoming finance minister, Nelson Barbosa, sought on Monday to calm investors by pledging to continue with austerity measures but markets still fell sharply on worries the leftist economist could stall his predecessor’s belt-tightening drive.

The real currency and Brazilian stocks had tumbled on Friday as news spread that President Dilma Rousseff had picked Barbosa, a close aide, to replace fiscally conservative Joaquim Levy. Levy left the administration after disagreements over the size of next year’s budget cuts. In a conference call with foreign and local investors on Monday, Barbosa promised he would take all measures needed to bolster government savings and meet fiscal targets next year.

Still, markets extended losses as many investors worried that Barbosa will prioritize economic growth over austerity, further widening a deficit that surged to nearly 10 percent of the gross domestic product over the past two years. “The problem was not so much what he said, but what he didn’t say,” said Paulo Celso Nepomuceno, a strategist at Coinvalores brokerage. “The speech was pretty much the same as before (the appointment of Barbosa), but the market is convinced that policy will change for the worse.” The real currency BRL= weakened further after Barbosa’s comments, falling more than 2 percent to pass the mark of 4 reais to the dollar for the first time since September. The benchmark Bovespa stock index also shed 1 percent of its value following his remarks.

Rousseff sought to reassure investors that her new economic team will not veer off the course of fiscal austerity. “The change of ministers will not alter the goal of balancing the economy and restoring growth,” Rousseff said at the swearing-in of Barbosa.

His tasks include reviving the unpopular CPMF financial-transaction tax and reducing mandatory spending, she said. Although his appointment was not welcomed by Wall Street, Barbosa could help Rousseff defuse the threat of impeachment -over allegedly breaking the country’s budget laws – by winning over support from her fractious alliance in Congress, many of whom disliked Levy’s aggressive belt-tightening.

Barbosa, who until recently served as planning minister, in the past publicly criticized Levy’s tough austerity plan, voicing concerns that the adjustment could hinder any recovery as Latin America’s largest economy sinks into its worst recession in 25 years.

Share This:


Welcome! Login in to your account

Remember meLost your password?

Don't have account. Register

Lost Password