Rousseff’s main opposition in the presidential race has promised to let the market dictate the country’s artificially strong currency if he is voted into office
In the lead-up to Brazil’s October 5 presidential election, Rousseff’s main opposition and Social Democratic (PSDB) candidate Aécio Neves has pledged to float the real freely if he is voted into office, as part of a plan to boost local industry and lower the country’s artificially strong currency. Neves’ leading economic adviser Mansueto Almeida broke the news to Reuters early in August, claiming that a free floating currency would better balance the country’s books and allow local manufacturers to compete with rival players in developing markets.
[C]ritics insist that the measures are compromising the country’s competitiveness in favour of a short-term fix
“If elected, a Neves government will aim to end the currency populism imposed by President Dilma Rousseff’s government and return to a free floating exchange rate,” said Almeida in a written statement. The advisor is part of a team, led by the central bank’s former governor Arminio Fraga, working towards an economic policy programme to rival Rousseff’s, after a series of failed attempts to jumpstart the economy.
“Brazil, unfortunately, is being held hostage to what we can call currency populism, because the government seeks to control inflation through permanent intervention in the foreign exchange market,” said Neves before an industrial lobby in Brasilia.
The central bank has, since last August, sold currency swaps to support the real and fend off the possibility of wayward inflation. Fearing that a real depreciation could spark hyperinflation, the central bank in June announced that it would be extending the measures until at least the end of the year. However, critics insist that the measures are compromising the country’s competitiveness in favour of a short-term fix, and claim the currency swap programme only prolongs the inevitable rise in inflation.
The latest opinion polls show that Rousseff is still ahead, although the margins are not so great that the president’s main challenger Neves will feel as though he can’t turn the tables with a number of well-targeted policies.