Financial Markets in Brazil React to Change in Economic Team

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The change of finance ministers in Brazil on Friday afternoon did not please the markets. The São Paulo stock market closed down on Monday registering the lowest volume of trade in six years. The foreign exchange market also reacted poorly to the substitution with the U.S. dollar closing the day at R$4.023, the highest value in almost three months.

On Friday, Brazilian President Dilma Rousseff announced she was replacing Finance Minister Joaquim Levy and nominating Nelson Barbosa, until last week the country’s Planning Minister, the head of her economic team. Barbosa is seen by financial agents as more aligned with Rousseff and less prone to push through the stricter economic measures sought by Levy.

The market was not impressed with Barbosa’s teleconference with investors on Monday morning, the first as Finance Minister. Although the minister reiterated his commitment in maintaining the economic strategy set about by his predecessor, promising to set as priorities the fiscal adjustments and the combat of inflation, economic indicators deteriorated after the meeting.

With the latest depreciation of the Brazilian real, the U.S. dollar accumulates an appreciation of more than 51.3 percent this year. The foreign exchange market, already reeling from last week’s downgrade by Fitch Ratings, which took away Brazil’s investment grade status, was also shaken by rumors that Moody may follow in Standards & Poor’s and Fitch’s footsteps and also downgrade the country’s sovereign rating to junk status.

“It’s stark how quickly Brazil’s growth projections have declined… and also the political problems that have not been resolved. There is almost a perfect storm,” Alastair Wilson, head of sovereigns for Moody’s was quoted by Reuters as saying.

Also affecting the markets these last few days is Brazil’s Supreme Court decision of annulling the session which created a special committee at the Chamber of Deputies to look into impeachment proceedings and established several conditions that according to analysts, reduce the chances of Rousseff being impeached.