Brazil\u2019s economy is in intensive care. And its intensifying political crisis \u2013impeachment proceedings have now been initiated against President Dilma Rousseff for allegedly using irregular accounting maneuvers to disguise the size of the budget deficit \u2013 is raising serious questions about who can provide the much-needed treatment.<\/p>\n
The situation is certainly serious. Output is contracting; fiscal revenues are faltering; and the budget deficit exceeds 9% of GDP. Inflation has surpassed the double-digit mark, forcing the central bank to raise interest rates \u2013 an approach that is unsustainable, given the deepening recession and the ballooning cost of servicing Brazil\u2019s rapidly growing debt.<\/p>\n
Indeed, with Brazil\u2019s creditworthiness deteriorating fast, interest-rate spreads on its sovereign debt are reaching Argentine levels. And its international reserve position of $370 billion, which once seemed unassailable, looks increasingly vulnerable. When the notional value of foreign-exchange swaps ($115 billion) is netted out, the share of short-term public debt (foreign and domestic) covered by international reserves is below the critical threshold of 100%. \u00a0Brazil’s Dilemma<\/strong><\/a><\/p>\n \n","protected":false},"excerpt":{"rendered":" Brazil\u2019s economy is in intensive care. And its intensifying political crisis \u2013impeachment proceedings have now been initiated against President Dilma Rousseff for allegedly using irregular accounting maneuvers to disguise the size of the budget deficit \u2013 is raising serious questions … Continue reading