Investor-Friendly Meirelles Appointed to Fix Brazilian Economy

  • Temer chooses banking veteran as his finance minister
  • Longest serving Central Bank chief is known for his ambition

Henrique Meirelles, who’ll now run the world’s ninth-largest economy, is one of Brazil’s most accomplished financial officials, a former president of BankBoston Corp. and President of the Central Bank during the country’s acclaimed period of growth and stability. But he will have to deliver fast to pull the nation out of its worst recession in a century and maintain investor confidence.

Meirelles, who slashed inflation when he was central bank chief from 2003 through 2010, was appointed finance minister on Thursday by Michel Temer. The former vice president became acting president after Dilma Rousseff was temporarily removed to face an impeachment trial in the Senate. Having had a foot in several political parties, Meirelles may be the man to build consensus in Congress for much-needed measures to cut spending and restore confidence, said Edwin Gutierrez.

"In many ways he is what Brazil needs," Gutierrez said. "He is a politician, he knows how to work in Brasilia."

While lacking political charisma, the tall, balding and somber Meirelles, 70, is admired as well as ambitious and could position himself for a run at the presidency in 2018 if his term as finance minister proves successful, especially in the current chaotic climate. Since leaving the central bank, he became a senior adviser at Kohlberg Kravis Roberts & Co. Ltd and the chairman at J&F Investimentos SA, the holding company that control’s the world’s largest meat producer, JBS SA.

Lost Investment Grade

For the better part of the past year a rolling corruption scandal and the political turmoil accompanying Rousseff’s impeachment have all but sidelined measures in Congress to scale back a budget deficit that more than tripled since 2014, costing Brazil its coveted investment grade credit rating and helping push the economy to its worst recession in a century.

Meirelles, Brazil’s longest serving central bank president, kept inflation within the government’s official target range in all but his first two years in office. The benchmark interest rate dropped by more than half during his tenure -- the entire duration of President Luiz Inacio Lula da Silva’s term.

Investors who saw inflation overshoot the 6.5 percent ceiling by more than 4 percentage points last year are now looking to Meirelles to repeat the feat by reining in spending and boosting the economy’s productivity.

Although Meirelles had a famously collegial relationship with Lula, who left him alone to run monetary policy, Rousseff resented the chief banker’s insistence on independence. Less than a month after her first election in 2010, Rousseff, who was Lula’s handpicked successor, ruled out having him stay at the central bank.

Four years later, at the beginning of her second term, Lula urged her to bring Meirelles back to government as finance minister to stem a deteriorating economy. Again she demurred and chose Joaquim Levy. He was hailed by markets as the ideal choice but succumbed after just a year to friendly fire from the president’s allies.

Ilan Goldfajn

Now, in a sign of the extensive powers Meirelles will have, Temer gave the trained engineer and business administrator a free hand in choosing a central bank chief. Ilan Goldfajn, currently chief economist at Itau Unibanco Holding SA, Brazil’s biggest bank by market value, is Meirelles’ top choice for that job, according to two Temer aides. Goldfajn served as deputy central bank governor between 2000 and 2003.

In an interview with Brazil’s TV Globo last week, Meirelles said the country needs to change expectations that public debt will continue to grow, by presenting realistic proposals that will be approved by legislators.

Yet Meirelles will need to act quickly and decisively, said Eduardo Castro, chief investment officer at Santander Brasil Asset Management in Sao Paulo, whose 6.2 billion-real ($1.8 billion) fund FI Renda Fixa Santander Oviedofund is the country’s top performer among those with more than $500 million under management.

"We can’t forget how much trouble the Brazilian economy is in," he said. "From a fiscal perspective, you need a significant scaling back of public accounts just to stabilize the debt trajectory. But more than a quick change, we need a signal of where we are going."

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