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Opinion, by Michael Royster

RIO DE JANEIRO, BRAZIL – Actually, it’s 3.01, the number of Brazilian reais needed to purchase one US dollar at the close of the commercial exchange markets yesterday, March 5, 2015. That’s the highest it’s been since August 2004.

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

2004 wasn’t that bad, comparatively speaking. In October 2002, just before the election of President Lula, the dollar had soared to the record level (under the Plano Real) of R$3,95. The market expected Lula to be a socialist spendthrift, a devotee of Castro and Chavez, expanding costly governmental programs at the expense of private enterprize.

Lula surprised everyone: he turned out to be a closet capitalist. Throughout both terms in office, he maintained the market-based Plano Real policies implanted by his predecessor, over fierce opposition from within his own party. As the market grew to trust Lula, Brazil became economically and politically stable, and the real strengthened against the dollar.

And then … along came Dilma. A lifelong socialist, she had always been a ferocious critic of the Plano Real economic policies, refusing to believe that the market could or should determine prices. During her first term of office, she ditched Plano Real policies and initiated her own.

Electorally, that turned out to be a good decision — jobs were up and inflation (supposedly) under control. Dilma mendaciously claimed everything was fine, denied Brazil needed tough economic measures, and won re-election.

But with the “Petrolão” scandal, the house of cards began to fall apart. Dilma’s allies started to desert her. Congress, previously an abject rubber stamp for Dilma’s proposals, suddenly grew cantankerous. Even Lula publicly criticizes her.

Politics trumps economics. Today’s politics says Brazil’s economics are bent out of shape, and Dilma can’t be trusted to stop doing what she’s been doing for the past four years. When distrust grows, the real weakens and the dollar goes up.

The Curmudgeon will emit more Smidgens opportunely.

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The Curmudgeon moved to Rio almost forty years ago, and has pretty much remained here ever since. He’s been writing political commentary for The Rio Times for almost seven years. He used to refer to himself as a WASP (look it up) but doesn’t any more because it embarrasses him.

1 COMMENT

  1. While I agree with the comments about Dilma, not so much so the Lula comments.

    Lula dramatically increased government spending (and along with it corruption), did almost nothing to improve infrastructure, or improve Brazil’s archaic labor laws and hence productivity.
    He financed his 8 year party (Bolsa this and Bolsa that…) with billions brought in by Petrobras’ sale of stock and debt and China’s years of unprecedented growth.

    Had Lula ruled during the end of the commodities bubble his fate would not have been too different from that of Dilma.

    As I write this the USD/BRL rate is hovering around R$3.06 and if the government stops meddling with the FX rate at the end of the month we’ll probably be closer to R$4.00 than to R$3.

    Levy can raise taxes and cut spending and neither will improve the underlying economy. The fact is that, judging from January and February’s inflation rates, we’ll end up with inflation north of 20% this year and maybe more if the government’s honest.

    If Mr. Levy wants to improve the economy he might consider eliminating taxes like IOF and IPI. (I just traded my 2012 pickup for a 2015 and saw the IOF on the contract and paid the hidden IPI!). He needs to look at every tax and boil it down to a half dozen that make sense and promote growth. That, changing archaic labor laws and tying wage increases directly to productivity increases might help to turn this around.

    When do the protests begin? Here are 2 or 3 things that make no sense. I just looked at my LIGHT bill. The price paid here R$0.49 per kilowatt hour is, at today’s exchange rate, roughly the same as the USA national average of USD$0.12 per kwh.Now the government is saying that they need increases of 70% this month to account for more thermal electric production. The US uses thermal, nuclear, hydro and renewables. Does that cost more than production here?

    Another one. Gasoline has gone down everywhere in the world except Brazil. Todaý’s price here is about USD$4.40 a gallon. Substantially higher than the US and we’re already told to expect more increases. Why? Same is true for diesel, natural gas, etc.

    All these taxes go to support a pork laden government that does nothing for the people of this country. When will they stop hiring new employees and let attrition bring down the total by 50% or so?

    Enough for one day. Back to my real job.

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