Brazil instability shakes local markets

The political instability in Brazil that political analysts warned and that had been on edge since the last presidential elections is already taking its toll on the markets.

(Economic recovery, Goldfajn’s main goal at IDB).

The Ibovespa, made up of the 100 main companies of the neighboring country, fell again for the second consecutive day. This Wednesday it fell by 0.18% while this Tuesday it did so by 0.65%.

This series is a consequence of the announcement of the president of the country, Jair Bolsonaro, to question the results of the second round elections where the former socialist president Luiz Inácio Lula Da Silva took over the Presidency for the third consecutive time, narrowly defeating the current president.

Specifically, Bolsonaro’s Liberal Party asked to annul the votes of 280,000 electronic ballot boxes used in the elections at the end of October since “alleged errors” such as the “malfunctioning” of five of them were proven.

“This generated a negative reaction in the markets and it also did so in the stock market. And it happens mainly because the expectation that the levels of polarization and political uncertainty will be slightly reduced with Bolsonaro’s stance of recognition of the results is over,” said Leandro Lima, an analyst for the Southern Cone and Brazil at Control Risks.

(The increase in prices would reach 8%, reveal OECD forecasts).

On the contrary, says the analyst, this could encourage Bolsonaro’s followers to continue with the demonstrations they have been carrying out recently.
The fiscal uncertainty of the next Lula government is something that is also moving the stock market strings in the neighboring country, the international analyst pointed out.

In fact, the president of the Central Bank, Roberto Campos Neto, showed his uncertainty about the future spending plan and criticized the lack of clear communication in this regard.

It is worth noting that Lula’s team presented a proposal to the neighboring country’s Congress to exempt around US$36 billion from the constitutional limit of the rule for next year. In this way, the social program Auxilio Brasil would be eliminated from the spending rule.

“We are clearly at a point where if we do more we can cause the opposite effect and hurt job creation,” Campos Neto said, quoted by Bloomberg.

In the campaign, the also president for two occasions of the neighboring country had promised that he would preserve the fiscal rules of the game.

Another reason that also moves the markets is the Lack of clarity about the formation of Lula’s new cabinet.

“At the moment, Fernando Haddad is emerging as the president-elect’s favorite to occupy the position of finance minister,” said Vanessa Blum, an economist at the Pontifical Catholic University of Sao Paulo.

For the analyst “the markets believe that Haddad would probably have a very spending-oriented fiscal stance if he took over the Treasury, so they have reacted badly to any indication in that direction.”


Brazil instability shakes local markets