According to Alejo Czerwonko, the market should not tolerate “fiscal irresponsibility” in a new government
Alejo Czerwonko, Chief Investment Officer for Emerging Markets Americas at UBS Global Wealth Management, said Brazil’s president-elect, Luiz Inacio Lula da Silva (PT), could see the dollar quoted at R$ 5 during his administration. To do so, it must adopt a pragmatic fiscal policy.
🇧🇷In the 6 to 12 month horizon, we believe that the exchange rate will remain at R$5, considering that the new government will adopt a pragmatic fiscal policy”, said the executive to the newspaper The State of S. Paulo in an interview published on Monday (5.Dec.2022). 🇧🇷If this does not happen, it is likely that it will exceed R$ 5.50 in this period🇧🇷
Czerwonko declared that Lula will face external and internal restrictions. 🇧🇷The world has changed after the pandemic. Inflation is high, central banks have raised interest rates and liquidity is tight“, said. According to the executive, these factors make good policy formulation more important for emerging countries.
🇧🇷It doesn’t take much for global investors today to flee countries that are moving in the wrong direction, as they can allocate capital in short-term US Treasury bonds, yielding around 4.5% a year.”, he said, noting that Brazil is no exception.
🇧🇷Look at the fall of stocks earlier this month. If a nation adopts prudent fiscal and monetary policies, it will be rewarded modestly. If you choose an unorthodox set of policies, you will be heavily penalized.🇧🇷
Czerwonko said he believes that Lula understands that he will have restrictions “very important” in his management. Among them, he cited the new composition of Congress.
🇧🇷We know that the increase in expenses, including in the social area, was part of Lula’s government program. But, if he continues to defend this, he will have a lot of political resistance and, probably, difficulties to govern”, said. 🇧🇷But I believe that the president will be pragmatic and will manage the country in the best way.🇧🇷
According to the executive, the president Jair Bolsonaro (PL) “is not perceived by the world as Brazil’s best ambassador on environmental sustainability” –something that “international investors are increasingly focused🇧🇷
Still, Czerwonko said he doesn’t believe that “the market will tolerate fiscal irresponsibility, even if the new administration has good environmental credentials🇧🇷
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