Explaining Brazil #318: Lula in a currency chokehold

Brazil’s economic indicators suggest a nation on the rise. Unemployment is at a historic low, GDP growth is strong, and consumer income is increasing. Yet, financial markets tell a very different story. The Brazilian currency is plummeting, borrowing costs are climbing, and market confidence has been in free fall for months.

What’s fueling this apparent contradiction? And more importantly, can President Lula and his economic team recover credibility?

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This episode used music from Uppbeat and Envato. License codes: Fairytales by Daniel Zambo, Aspire by Pryces (B6TUQLVYOWVKY02S), and Private Investigation by AMZA (V9ZG3LD).

In this episode:

• Mario Sergio Lima is Medley Global Advisors’ chief Brazil analyst. He is based in Brasília.

Background reading:

• Governments typically launch austerity plans to restore market trust. But Finance Minister Fernando Haddad’s announcement of budget cuts on Wednesday had the opposite effect: worsening the foreign exchange crisis and tainting the current administration.

• In a recent website story, we explained that recent global political shifts (especially Donald Trump’s win in the U.S.) would diminish any incentives for Lula to implement austerity.

• The foreign currency exchange rate broke the psychological threshold of BRL 6 for the first time in history after the government’s budget cuts were announced.

• Prices are rising faster for the poor, amid rising costs of electricity and food products, The Brazilian Report showed last week.

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The post Explaining Brazil #318: Lula in a currency chokehold  appeared first on The Brazilian Report.