Markets had initially reacted positively to the Brazilian government’s new austerity plan announced on Monday. However, it’s back to red on Tuesday as investors remember why they were so bearish in the first place: political instability, corruption scandals, fiscal deficit, etc.
“After a first moment in which the market saw the announcement with kind eyes, it is perceiving that a considerable part of these proposals have to pass through Congress, where there are no certainties that they will be approved,” Ignacio Crespo, analyst at Guide Investimentos, told AFP.
Real Down, Bovespa Up
Consequently, the real is down roughly 1.34 percent on Tuesday. One real is now worth 0.2587 U.S. dollars, and one U.S. dollar is worth 3.8654 reais.
The Sao Paulo Stock Exchange, for its part, is up 0.53 percent to 47,535.39 Bovespa index points. The exchange has been surging consistently since last Thursday, having returned 1.88 percent over the past four trading days.
The Austerity Plan
Spanish-language site Ambito.com explained that the austerity plan implies a postponement of salary adjustments and public sector contracts and overall spending in infrastructure. In addition, the government plans to eliminate 10 of the 39 ministries and 1,000 state employees, and is contemplating the option of reestablishing some taxes and cutting back on social aid programs.
“There are still many doubts: why were these measures announced just now, why were they not adopted earlier. One cannot understand why these efforts were not made with more time,” Crespo added.
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