By Lise Alves, Senior Contributing Reporter
SÃO PAULO, BRAZIL – After weeks of speculations, the new economic team to lead Dilma Rousseff’s administration in its second term was announced on Thursday: Joaquim Levy will take over as Brazil’s new Finance Minister, Nelson Barbosa will be the new Budget and Planning Minister, while Alexandre Tombini was asked to stay on as Central Bank President.
The appointments were seen by the market as a way to gain back investor confidence and restore Brazil’s economic credibility. “We have no immediate measures to announce. There will be no surprises,” said Levy at a news conference after the announcement.
The former Bradesco bank executive emphasized the need to strengthen Brazil’s fiscal accounts and set a primary surplus already in 2015. He said his team’s target would be of a primary surplus of 1.2 percent of the GDP in 2015 and no less than two percent in 2016 and 2017.
“Meeting these targets is fundamental to increase confidence in the Brazil’s economy and lay the foundation for recovering economic growth,” explained Levy. For economist Roberto Troster these economic growth targets “are possible, feasible and please the markets.”
Levy’s colleague, Minister Nelson Barbosa said that the team’s immediate challenge would be to adapt the 2015 budget project to a “new macroeconomic scenario”. “We will work for the growth of the Brazilian economy, the rigorous control of inflation, fiscal stability and generation of jobs,” said Barbosa.
While this new economic team is likely to increase market hopes of a return to more orthodox policies during President Rousseff’s second term in office, Neil Shearing Chief Emerging Markets Economist at Capital Economics says the new Minister’s task will not be an easy.
He explains, “While fiscal and monetary policy are both likely to be tightened over the coming quarters, we suspect that the new team will struggle to advance much-needed reforms to the supply side of Brazil’s economy.”
One of the big questions for analysts is how much autonomy Rousseff will give her new Finance Minister. “While Mr. Levy has talked tough on the need to restore fiscal discipline, there is a substantial gap between the policies he has advocated and the ones that were followed during Ms. Rousseff’s first term in office. It remains to be seen whether this divide can be bridged,” noted Shearing.
Rousseff strongly criticized left-wing candidate Marina Silva’s presidential candidacy stating that it was being backed by bankers. Rousseff also stated during her campaign that no significant fiscal policy adjustments were going to be made during her second term.
During Thursday’s press conference, however, the former IMF official who also served as Treasury Secretary under President Lula, said that he felt he would be able to implement his plans. “Autonomy has been given,” said Levy, adding that Rousseff had total confidence and trust in the new economic team.
According to the Capital Economics economist, two things are likely to happen under Levy’s watch. First, fiscal policy is likely to be tightened. Levy’s propensity to cut spending earned him the nickname of Edward Scissorhands, in an allusion to the Tim Burton film by the same name.
The second thing likely to happen is that the various forms of creative accounting that have been deployed over the past couple of years are likely to be phased out.
The new appointees, Levy and Barbosa have been given offices in Brasilia to work in transition teams with their respective out-going counterparts, Finance Minister Guido Mantega and Budget and Planning Minister Miriam Belchior.