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Opinion, by Michael Royster

RIO DE JANEIRO, BRAZIL- The seemingly inevitable has happened — Brazil has now been downgraded by Standard & Poor’s, one of the three big credit risk agencies, to “speculative” status, meaning there is a risk it will not honor its debt. Many are asking “What took them so long?”

Michael Royster, aka The Curmudgeon.
Michael Royster, aka The Curmudgeon.

The Curmudgeon submits it is because S&P was (and its competitors Moody’s and Fitch still are) waiting to see whether Finance Minister Levy would be able to stop the rot and right the ship.

It has become clear to S&P that Levy will not be able to do this, because he has zero support from Dilma, Barbosa and Mercadante, all of whom continue to espouse the “tax and spend” policies that got Brazil into its current pickle.

Moreover, Levy has no support from Congress, where several hundred crooks refuse to reduce benefits to people who vote (retirees, judicial clerks and other government workers) or to hugely profitable industries (automobiles, heavy construction) that hire (well, okay, used to hire) vast numbers of employees.

Brazil’s main opposition party PSDB, which ought to support Levy because he’s trying to do precisely what PSDB announced it would do if Aécio were elected, has abandoned any pretense of being principled, and has chosen to vote against all Levy’s proposals for cutting expenditures.

Former President Lula, who ought to support Levy because he himself continued FHC’s economic reforms, has now claimed that the loss of “investment grade” status is meaningless. He conveniently forgets that in 2008, when S&P awarded Brazil investment grade status, he crowed that this proved Brazil was, finally, a serious country.

In short, with the Executive and Legislative branches united against austerity, Mr. Levy hasn’t got a chance, and Brazil’s economy will steadily worsen. S&P recognized this, Moody’s and Fitch will soon follow.

The Curmudgeon will emit more Smidgens opportunely, hopefully less dismal.

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4 COMMENTS

  1. Unfortunately, and as some of us prophesized, right on the money. Lula, Dilma & Co. will cost Brazil 20 years if not more.
    In my own case, earning money in dollars, I’m in heaven. Brazil cost of is now comparable to the US.

    I do feel terrible for the children of my friends, some just at the age to start college, and the very bleak future they now face.

    The negative growth will continue for a few years as it has no reason to stop. Dilma will not make any structural reforms and seriously cut spending. Cutting ministries is meaningless if the employees are just shuffled around….

  2. To the author: you mention that PSDB “has chosen to vote against all Levy’s proposals for cutting expenditures”. Can you please be more specific? I try to follow Brazil’s political scene especially regarding the economy, and I’m not aware of any such vote.

  3. if you leave your economy in the hands of credit agencies,soon you will suffer more than you can ,imagine.those credit agencies,while downgrading Brazil’s credit rating,They will not touch Greece,portugal and spanis’s credit ratings.is it not strange.these 3 countries are almost bankcrupt and in recession..well,brazilians are very intelligent people .please just see the real picture.and do nto listen to the speculators.

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