Halister News

(Bloomberg) -- Sliding BRL and stocks are reflecting fears former President Lula, just named as Rousseff’s chief of staff, could revive stimulus adopted to protect Brazil during the global financial crisis, Alexandre Schwartsman, former BCB directors and a consultant in Sao Paulo, says in a phone interview.

• Similar measures could fail today as the economic situation is “much more difficult” with increasing debt, fiscal deterioration and above-10% inflation
  • Eight years ago, Brazil saw inflation near its 4.5% target, a primary budget surplus and a BCB with better credibility compared to today, says Schwartsman, who was BCB director of international affairs from 2003 to 2006
• The scenario today is also different from that seen in 2003; then, Lula mostly exceeded market expectations, naming a pro-market economic team, including Meirelles at BCB head, and approving a pension regime reform for public servants
  • Today, even if Rousseff is impeached, it would be difficult for the new govt to approve reforms as Carwash probe spreads across political parties
  • Using nation’s international reserves could be feasible only under two scenarios:
    • With the firm conviction that the current $370b level is way bigger than needed to shield the economy
    • They should use the reserves only to reduce debt, not to boost consumption
• NOTE: BRL drops for 3rd day to 3.7813, and Brazil stocks fall after Lula was appointed minister by president Rousseff; Veja magazine also reported that Lula invited Meirelles to head BCB