Currency slide fueled by political instability
By Ben Tavener
SAO PAULO – Brazil’s currency closed Tuesday at its weakest level against the dollar in more than 12 years.
Concerns about continuing political instability in the South American country resulted in the dollar buying 3.607 reais — an increase of 1.54 percent for the day, and the most since February 2003.
The dollar has strengthened 5.4 percent against the real in August, and 35.7 percent for the year. French investment bank Societe Generale predicted earlier this month that the dollar could reach the 4 real mark in coming weeks.
The new lows come despite a general improvement in global markets after China, in an attempt to boost the economy, announced cuts to its interest rates.
Brazil’s key Bovespa stock exchange was buoyed, ending the day up 0.47 percent, despite slumping 3.03 percent Monday.
Experts said internal political pressures had weighed on the Brazilian currency, including reports Monday that Vice President Michel Temer was distancing himself from the government by leaving a political liaison role that has helped the presidency continue to function despite frosty relations with Congress.
Temer has since played down the significance of what he characterized as minor changes to his political role, but local media speculated his vast Brazilian Democratic Movement Party, or PMDB — a key ally of President Dilma Rousseff’s Workers’ Party and the country’s biggest political movement — could be poised to leave the ruling coalition.
Tuesday also brought more negative news for the government, as the vice president of Brazil’s top electoral court, Gilmar Mendes, demanded an investigation into funds received by a company linked to Rousseff’s re-election campaign in the months before the poll.
Rumors that Finance Minister Joaquim Levy is set to leave his position due to differences about the implementation of his controversial austerity plan also had an impact, despite denials by government figures.
The government on Monday also announced plans to axe 10 ministries to prove its commitment to the austerity drive that is hoped will boost investor confidence in an economy expected to contract through next year.