Brazil’s protesters: it’s worse than they think

Brazil’s protesters: it’s worse than they think

Jonathan Wheatley

  • FT / Beyondbrics

| Mar 16 12:56 |

It was a cathartic weekend for Brazilians, as more than a million people took to the streets to show their discontent with the government in scenes not seen since the mass demonstrations that preceded the impeachment of President Fernando Collor de Mello more than a decade ago.

Sadly, any idea that such a “cleansing of the soul” (as they sometimes say in Brazil) would be followed by a fresh optimistic start on Monday quickly evaporated as the central bank’s weekly round of consensus forecasts showed no end to the deepening gloom.

The bank’s latest weekly survey of market economists shows inflation expectations rising for an 11th consecutive week, to 7.93 per cent, with GDP seen contracting this year by 0.78 per cent and the currency ending the year at R$3.06 to the dollar.

The currency opened fractionally stronger on Monday from Friday’s close of nearly R$3.25 to the dollar but any strengthening is more likely to reflect a bout of profit-taking than any change of direction. The facts appear to be running away from the forecasters and the economists surveyed by the central bank may have quite a bit of catching up to do – hardly surprising with things now moving so quickly in Brazil, as the survey is carried out in the week before its regular Monday publication.

One fact that has overtaken markets since this week’s survey was carried out was a sale of R$64bn in floating-rate 6-year bonds by Brazil’s Treasury last Thursday. The sale was the biggest ever of this class of note (LTFs, or Letras Financeiras do Tesouro) and was, Valor Econômico reported, “a clear demonstration of the deterioration of perceived risk among investors”. The Treasury has been reducing the share of floating-rate debt in its liabilities, from more than 60 per cent at the end of 2003 to less than 20 per cent at the end of last year. But their share was back up above 20 per cent in January and is clearly on the rise again.

The record-breaking sale of LTF’s follows another record-breaking sale last month, of R$9.3bn in short-duration bills maturing in October this year, with an average annual yield of more than 13 per cent.

Investors, clearly, are badly spooked. The street protesters may have more to worry about than they know.


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