Arnon Grunberg

Assets

Strict

On a tough place – Petr Coy in NYT:

‘Brazil’s new president is hemmed in by protesters on one side and financial markets on the other. He needs to spend money to please the public, but he needs to demonstrate fiscal responsibility to keep investors from abandoning Brazilian assets, which could cause interest rates to soar and cripple the economy. Unfortunately, it will be extremely difficult to do both at once.’

(…)

‘Lula, as he is known, was able to spend generously on social programs during his first period in office in part because of high prices for many of the commodities that Brazil exports. Brazil is a major producer of steel as well as agricultural products such as citrus and soybeans. Now commodity prices are faltering because of expectations of a global economic downturn. On top of that, Brazil’s central bank has raised its key lending rate to nearly 14 percent in an effort to extinguish inflation, which is running around 6 percent.
Bolsonaro, although far right in his politics, governed as a free-spending populist. His government bolstered fuel subsidies last year, which won him votes but worsened the government’s financial situation.’

(…)

‘“He has no room to do the kinds of things that people expected him to do,” de Bolle told me. On the spending side, investors who worry about deficts spending will rebel if the government increases social spending or puts through a big increase in the minimum wage. Conversely, the public will rebel if he attempts to roll back subsidies on fuel that Bolsonaro put in place.
De Bolle said that Brazil’s Wall Street is thick with Bolsonaro supporters. She argued that they gave Bolsonaro the benefit of the doubt but aren’t cutting Lula any slack. I told her that sounded like a great opportunity for investors from outside Brazil: If indeed domestic investors are overly pessimistic about Lula’s ability to rein in spending, then prices of Brazilian debt must be too low, presenting a good deal for buyers. She agreed. “Brazil will certainly present that opportunity,” she said.’

Read the article here.

Less fiscal responsibility might be the best solution. I thought that the strict belief in austerity had largely disappeared.

And Brazil should not be another Greece. Also, Brazil has its own currency, and more room for all kinds of maneuvers than Greece had ten years ago.

Foreign investors or foreign governments, they are also investors, could step in. Very much so.

Buying some debt is far more honorable than supporting, directly or indirectly, another coup in Latin-America.

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