Brazilian Economists Concerned
About Inflation, Real Appreciation

A group of analysts focused on Brazil has expressed concerns about an increase in inflationary pressures, the appreciation of the country’s currency, and impact of foreign investments on the outlook for Latin America’s largest economy.
Eurasia’s Christopher Garman, TCW’s Marcela Meirelles, Citigroup’s Marcelo Kfoury and Citi Investment’s Jason Press debated their views in a panel discussion sponsored by the Brazilian American Chamber of Commerce and moderated by Tandem Global’s Paulo Vieira da Cunha.
Cunha, who’s recently ended a two-year tenure at the Brazilian central bank, said in his introductory remarks that the Brazilian economy “has taken a downturn” in the last few months, as internal demand for goods hasn’t kept apace with industrial output.
He said the “honeymoon is over” with President Dilma Rousseff, as her administration has crossed the 100-days threshold without major new policies being implemented.
Kfoury, who heads the economic research group at Citigroup Brazil, also sees major risks in rising inflation and does not expect any meaningful action from the part of the central bank in the short term.
The bank’s president, Alexandre Tombini, has said last month that the latest interest rates increase, its fifth straight, to 12.50 percent, should be enough for now to contain inflation, which reached a six-year high.
Meirelles, who’s responsible for TCW’s credit strategy, also agrees that the Rousseff administration hasn’t been able to accomplish much so far, mainly because of what she called “distractions” along the way.
Rousseff has been plagued by a string of corruption charges leveled against members of her cabinet, which already forced two of its ministers to resign. The crisis has weaken the president’s ability to pass legislation in congress that would boost spending and implement her campaign proposals.
Meirelles said that government interventions on the currency markets are “quick fixes kind but not long-term solutions.” Increased foreign capital inflows “may be good for Brazil’s pipeline of projects,” but may also determine an even greater appreciation of the real.
Garman, lead analyst on Brazil at the Eurasia Group, says that the government’s planned overhaul of the country’s tax code “is very much alive,” which is positive.
On the other hand, he sees no favorable political environment for fiscal adjustment measures. He does give points to President Rousseff, though, for being “more pragmatic than analysts expected.”
Press, equity strategist for global emerging markets, despite recommending Itaú Unibanco and Banco Bradesco, two of the biggest financial companies based in Brazil, said that there’s “a sense of despair” from investors in the country’s equities.
He sees political pressures in congress for more spending, and is also concerned about increased inflation and the appreciation of the real.