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Brazil's new minister promises the same Levy targets, but fails to convince investors

Tuesday, December 22nd 2015 - 14:49 UTC
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“I want to underline that our economic policy is the same. Our focus remains on fiscal adjustment and reducing inflation,” said Nelson Barbosa “I want to underline that our economic policy is the same. Our focus remains on fiscal adjustment and reducing inflation,” said Nelson Barbosa
But the Sao Paulo stock market fell 1.62%, and the Real currency broke through the barrier of four to the dollar for the first time in two and a half months But the Sao Paulo stock market fell 1.62%, and the Real currency broke through the barrier of four to the dollar for the first time in two and a half months
Barbosa vowed to convince Congress of the need of a primary surplus target of 0.5% of GDP next year. Levy had insisted on a target of 0.7% of GDP. Barbosa vowed to convince Congress of the need of a primary surplus target of 0.5% of GDP next year. Levy had insisted on a target of 0.7% of GDP.

Brazil's new finance minister sought to reassure investors on Monday as he took the reins of the recession-hit economy, but the Sao Paulo stock market and the Brazilian real both fell. In his first full business day on the job, Finance Minister Nelson Barbosa held a teleconference with international investors, promising to practice the same fiscal discipline as his predecessor, Joaquim Levy.

 “I want to underline that our economic policy is the same. Our focus remains on fiscal adjustment and reducing inflation,” said former Planning minister and ally of embattled leftist President Dilma Rousseff.

Barbosa said he expected inflation to fall next year and promised measures to improve efficiency in the economy. “With an increase in productivity, companies can increase their profits without raising prices. The key is to increase productivity,” he said

However the comments failed to reassure the markets, however: the Sao Paulo stock market fell 1.62%, and the Real currency broke through the barrier of four to the dollar for the first time in two and a half months, falling 1.44%.

The world's seventh-largest economy is in recession, facing runaway prices, budget woes and forecasts that its current recession will last two years. This has been exacerbated by a massive corruption scandal at state oil giant Petrobras and the opening of impeachment proceedings against Rousseff.

Levy, who took on the finance portfolio in November 2014, was supposed to be the pro-market savior whose steely budget cuts would get the government's books in order and the economy back on track. But he failed to convince Congress and achieve his goal of rebalancing the public finances in a poor country with a big welfare spending bill.

As the political and economic woes mounted, he found himself increasingly isolated in an administration more inclined to ramp up spending than cut it.

Barbosa vowed to convince Congress of the need of a primary surplus target of 0.5% of GDP next year. Levy had insisted on a target of 0.7% of GDP. Brazilian media reports cited disagreement with his colleagues over the goal as a reason for his departure. Brazil's fiscal deficit is estimated to have reached two digits percentage given the political uncertainty which reflects directly in the lack of confidence.

Another reason which sealed Levy's fate was after Standard & Poor's in September and then Fitch this month cut Brazil's credit rating to junk. One of his stated aims on taking the job was to avoid Brazil losing its investment grade status.

President Dilma Rousseff said that the country's needs to overhaul its regulatory framework and reform its tax system to become more competitive. Speaking at the assumption of Nelson Barbosa as her new finance minister in place of the departing Levy, Rousseff said the priorities of the new economic team will continue to be balancing the country's fiscal accounts and restoring growth.

Categories: Economy, Politics, Brazil.

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  • Jack Bauer

    Nothing will change under Barbosa. He is part of the same gang who supported fat-ass's policies before, during the crisis, and now....what his objectives are, are all too clear - allow uncontrolled spending to continue by reducing workers' rights, and increasing taxes and contributions. There is only one correct solution : cut spending - not investments - by the size of the current deficit (around R$ 120 billion)
    He said he “wants to improve efficiency in the Economy”.......what he should be saying is that he wants to improve efficiency in the 'Government' - by implementing strict measures to stop most of the stealing and corruption in just about everything that is 'public', by moralizing the social welfare programmes (handouts) which cost Brazil a ton of money and do little towards preparing the recipients to get back into the work market and to be productive.
    As to inflation, on the one side you've got the Central Bank increasing the SELIC rate to reduce the amount of money in circulation, and on the other you've got the Government, sabotaging this effort by continuing to pour billions into the economy in the form of unproductive costs (handouts) ....which is really all interests the Government, in its futile attempt to keep its electoral base happy and to prevent its popularity from falling any further. The rest of Barbosa's and Dilma's rhetoric, is just a lot of hot air to silence the ignorant . Wait until the 'Lava-Jato' is finalized and the Federal Police give their full attention to other corruption scandals in the BNDES, Eletrobras, State company pension funds etc, just waiting to be uncovered - the 'mensalão', and now the PB scheme, are just the tip of the iceberg.

    Dec 23rd, 2015 - 07:20 pm 0
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