How the markets now run Brazil
Bankers and investors are increasingly confident that the country’s next president will adopt a programme of fiscal reforms, even though no leading candidates are standing on that platform. Why? Because over the past decade, Brazil has become a ‘marketocracy’.
Illustration: Barry Downard
Brazil’s democracy has added a new feature in the last few years: people can vote for a president, but the markets retain the right to deploy an ‘impeachment put’ if that president is messing up the economy. For proof, look no further than the fate of former president Dilma Rousseff. Her impeachment in 2016 was legally based on fiscais pedaladas (accounting irregularities). That she was almost alone among powerful politicians not to be cited in the sweeping Lava Jato corruption enquiry was not enough to save her. External forces still found a way to oust her from office.
Now, two years later, few senior market participants even bother to pretend the accounting charge was anything other than a markets-driven constitutional fig leaf to remove a bad president, whose terrible economic policies pushed the country into its deepest ever recession.
Speaking at a Credit Suisse Investors Forum earlier this year, Luis Stuhlberger, chief executive and chief investment officer of Verde Asset Management, said: “The conclusion that one reaches is that any candidate will do [fiscal] reforms in 2019, either proactively or reactively, because if we have a [president] with very different ideas, he or she will be impeached.