Dollar reaches highest value in four months with Paulo Guedes’ fiscal maneuver

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Minister of Economy decided to use resources from precatorios (judicial debts) to finance a social program – which is contrary to Brazilian laws. Lack of fiscal transparency made the US currency go to R $ 5.63 edit


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SÃO PAULO (Reuters) – The dollar soared on Monday, with the market reacting badly to the government’s definition that Citizen Income will be funded by resources that will not come from spending cuts, which has shaken investor confidence in an expense reduction agenda it could contain the ongoing deterioration of public accounts – considered the most serious macroeconomic problem in Brazil.

On the 13th of that month, the price closed at R $ 5.9012, the historic maximum for closing the session in the spot market.

At the low of this trading day, the currency reached 5.5145 reais, down 0.71%.

Speaking at the interval of a meeting at the Palácio da Alvorada led by President Jair Bolsonaro, with the presence of ministers and leaders of the National Congress, Senator Marcio Bittar (MDB-AC) said that the Citizen’s Income will be paid with resources for precatories and with funds from Bolsa Família itself, which will be extinguished, and from the Fund for Maintenance and Development of Basic Education (Fundeb).

He pointed out that there was a “consensus” and that the president gave the green light to close the proposal for the program, which will replace Bolsa Família.

What most negatively impacted the market was the use of precatories – debts recognized by the Federal Government. In practice, the government will withdraw a portion of these funds to finance the new program.

Bruno Dantas, Minister of the Federal Court of Accounts (TCU), commented on Twitter that the use of precatories seems “a trick to hide escape from the spending ceiling”. “It reduces primary expenditure artificially, because the debt does not disappear, it is only rolled over to the following year. Instead of the ceiling stimulating money savings, it stimulated creativity ”, he added.

Among investors, the perception is that the government shows less appreciation for the control of public accounts, at a time of growing concern with respect to the spending ceiling in 2021.

Alfredo Menezes, manager at Armor Capital, spoke of “a very bad signal”. “I don’t know how this can be put on the minds of some (using precatories),” he said.

The pressure on the exchange rate, reinforced by outflows of resources, led the dollar to 5.6763 reais, up 2.21%. The Central Bank intervened with the sale of US $ 877 million in the spot currency auction – the first of its kind since August 21 -, but the real continued as the currency with the second worst performance on the day, better only than the struggling lira Turkish.

In fixed income, the stress was even more notable. The DI January 2027 jumped 75 basis points (highest increase since April), to almost 8%, four times the current Selic rate (2% per year). The January 2025 DI shot 74 basis points higher than the previous adjustment.

The feeling of little progress on the reformist agenda was endorsed by statements by the government leader in the Chamber of Deputies, Ricardo Barros (PP-PR), that the tax reform remains under discussion between the government and the allied base, but will only be announced when it counts. with enough votes to pass. In an interview with CNN Brasil, he did not give a deadline for this.

The special secretary of Finance, Waldery Rodrigues, said earlier this Monday that a new proposal for a minimum income is being discussed and that it will be announced “in due time”.

According to market sources, the Minister of Regional Development, Rogério Marinho, said that the debate on the eventual overturning of the public spending ceiling should be done only in 2022.

“The real (the currency) is a market that is ‘without an owner’. The agenda is weak, this makes room for even higher volatility ”, said an operator.

Abroad, the focus is on the debate, on Tuesday, among candidates for the US Presidency: Republican Donald Trump, current president; and Democrat Joe Biden, who was vice president in the Barack Obama administration (between January 2009 and January 2017).

The dollar had mixed performance against emerging currencies, up 1.7% against the Turkish lira and 1.3% against the Russian ruble, but down 0.5% against the South African rand and the Chilean peso and 0.35% in relation to the Colombian weight.

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