Rousseff seeks to calm investors

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BR WEF 787858 Bloomberg Brazilian President Dilma Rousseff is heading to the Swiss town of Davos after she spurned the World Economic Forum two years ago for an anti-capitalist conference. Rousseff is expected to try to rebuild confidence in Brazil's economy. Photo: Bloomberg

Rio de Janeiro - Two years ago, Brazilian President Dilma Rousseff spurned the World Economic Forum (WEF) to attend an anti-capitalist conference and to visit Cuba. This week, she will be front and centre when the global financial elite gather at Davos in the Swiss Alps.

Rousseff’s about-turn was motivated by the need to rebuild confidence shaken by deteriorating public finances and slowing growth, Gustavo Loyola, a former president of Brazil’s central bank, said yesterday.

With public debt rising, the currency falling, the trade balance worsening and critics questioning the credibility of government accounts, Rousseff must reassure the global business community, he said.

“She wants to take advantage of Davos to communicate with investors and calm them down,” said Loyola, who is now a partner at consulting firm Tendências Consultoria Integrada. “She is going to try to sell Brazil at a time when investors are sceptical and disappointed.”

Rousseff will be accompanied by Finance Minister Guido Mantega, central bank president Alexandre Tombini and development bank BNDES president Luciano Coutinho, along with other officials.

She will address executives and other participants in a special session led by WEF founder and executive chairman Klaus Schwab on Friday.

It may prove to be a tough crowd. In a November Bloomberg global poll, 43 percent of investors described Brazil’s economy as deteriorating, while 51 percent were pessimistic about the impact of Rousseff’s policies.

The immediate source of disappointment is faltering growth. Economists estimate Brazil’s gross domestic product (GDP) expanded 2.3 percent last year. That would put the average growth rate during Rousseff’s three years in office at 2 percent, less than half the 4.5 percent average over the previous five years.

As growth sputtered, inflation last year accelerated to 5.91 percent from 5.84 percent in 2012. It was the fourth consecutive year that it has exceeded the official 4.5 percent target.

A falling currency also makes Brazilian assets less attractive to investors, and the benchmark Ibovespa stock index has declined 30 percent since Rousseff took office, including 15.5 percent last year.

Bill Gross, the co-founder and chief investment officer at Pacific Investment Management Company (Pimco), said last week that Brazil was no longer a preferred emerging market after Pimco funds were hurt by bullish bets on the nation last year.

Pimco is the world’s largest fixed-income manager.

As dismal as the economic numbers were, equally damaging was a loss of confidence in the government, Aberdeen Asset Management fund manager Edwin Gutierrez said.

Last year, as tax cuts for businesses and consumers shrank government revenues, Mantega lowered the primary budget surplus target (the amount set aside after interest payments in order to reduce total debt) to 2.3 percent from about 3.1 percent of GDP previously. – Bloomberg


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