from Dollar Collapse:
For about a decade there, Brazil was the Latin American country that got it right. Under a socialist but apparently reasonable government they kept their budgets under control, managed the population shift from farm to city, and developed some efficient export industries that brought in plenty of hard currency. The Brazilian real held its own on foreign exchange markets and inflation was, as a result, moderate.
Then it all fell apart. The US dollar spiked, commodity prices tanked, and it was discovered that a whole range of big local players were gaming the system in various ways, sparking a corruption scandal that reaches all the way to top.
Brazil’s real is now the worst performing major currency (in a world of badly-performing major currencies), its budget deficit is 8% of GDP, the interest rate on its 10-year bonds exceeds 15%, and GDP is apparently about to fall off the table.
There are calls for the impeachment of the president and rising speculation that the finance minister, unable to get spending cuts through the legislature, is about to quit. The latter’s departure will remove the last prop from Brazil’s investment grade credit rating, making it even harder to borrow, necessitating even bigger spending cuts, and sending the country into a stereotypical LatAm death spiral. Just in time for it to host next year’s Olympics.
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