Brazil's Real Tumbles on Speculation Finance Minister to Resign

  • Finance Ministry said Joaquim Levy would stay in the job
  • Ibovespa pared advance as Veja reported Levy would leave post

Speculation Brazil’s Finance Minister Joaquim Levy would resign his post amid a political crisis that has paralyzed an already stalled economy sent the currency tumbling late Friday.

Levy planned to quit during a meeting with President Dilma Rousseff on Friday after nine months struggling to get his austerity measures approved by Congress, Veja Magazine columnist Vera Magalhaes reported without saying where she got the information. Local media reports that Levy has been facing criticism within the government -- and that former President Luiz Inacio Lula da Silva has been calling for his resignation -- have increased in recent weeks as Levy faced resistance to his proposals for spending cuts and tax cuts that he says are needed to shore up the country’s budget.

This isn’t the first time rumors of Levy’s departure have sent Brazilian markets tumbling. In September, days after he told lawmakers the government wouldn’t be able to deliver a budget surplus before interest payments in 2016, concern he would leave pushed down the currency 0.6 percent in three minutes. Levy stayed on, but since then, Brazil has had its sovereign rating cut twice, totaling three downgrades in three months -- including one that cost the nation the investment grade Levy had sought to preserve.

The real lost 3.2 percent to 3.9236 per dollar on Friday, the most among the world’s 16 major currencies, while the Ibovespa rose 0.2 percent to 47,236.11, paring a rally of as much as 1.2 percent.

Traders might have acted too fast. The Finance Ministry said after markets closed that Levy didn’t ask to leave during the meeting with Rousseff and would stay in the job.

“It’s not just about Levy leaving, it’s about rumors that Brazil will be left without a finance minister at a critical time,’’ Italo Abucater, the head of currency trading at ICAP Brasil Ctvm, said from Sao Paulo. “It has become clearer and clearer that the economic policy is subject to political issues. Buying Brazil is a reckless decision these days.’’

A stalemate in Brazil over impeachment proceedings has left Rousseff’s plans to shore up fiscal accounts adrift. After failing to get a quorum, Congress delayed until next month a session to vote on presidential vetoes of major spending increases. In the meantime, fiscal revenue has come in short of forecasts, meaning the government may miss its budget surplus target for 2015, which has already been trimmed to 0.15 percent of gross domestic product.

Fitch Ratings lowered the nation’s debt rating to the cusp of junk Thursday, the same level Moody’s Investors Service placed Brazil in after a downgrade in August. Standard & Poor’s cut the country to junk last month, citing the rising debt burden and difficulty in reviving the economy.

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