The perception of risk by international investors worsened more intensely with Brazil than with the Latin American economies as a whole.
Since the beginning of the year, the Brazilian country risk measured in CDS (Credit Default Swap) has risen 87 points, to the level of 290 points, according to a monitoring carried out by the consultancy Tendências. In the same period, the average country risk of Colombia, Chile, Peru and Mexico increased 58 points to 168 points.
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The CDS is a kind of insurance against default and therefore works as one of the main measures of risk between economies. The higher the CDS, the riskier the country is considered by investors.
“The background of this movement is the most adverse and challenging moment in the world”, says Silvio Campos Neto, economist at Tendências. “Monetary adjustment has been more incisive than expected, with the Fed (Federal Reserve, US central bank) trying to take the reins of inflation.”
Last week, the Federal Reserve raised the country’s interest rates by 0.75 percentage point – the biggest increase since 1994 – in a bid to cut the country’s highest inflation in 40 years.
US central bank raises interest rate by 0.75 pp
Higher interest rates reduce the pace of economic growth, because they make credit for families and investments more expensive for companies. In this vein, the International Monetary Fund (IMF) reduced the forecast for this year’s world GDP from 4.4% to 3.6%.
The comparison made by Tendências includes Latin American countries that have aroused some interest from investors in recent years, but that have experienced recent uncertainties, especially with political disputes.
In March, Chile elected a young Gabriel Boric, a former student leader, and last week, Colombian voters gave the victory in the presidential race to Gustavo Petro, a former guerrilla of the M-19 group.
“These are countries that went through internal issues, through elections that generated mistrust among investors”, says Campos Neto.
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This more difficult environment is also expressed in the behavior of currencies – the outflow of capital accompanies the worsening in the perception of risk. They have been losing value against the US dollar as investors seek safer assets in the US as interest rates rise. In June, the dollar has already risen 10.55% against the real until last Friday (24).
“Inflation in the United States has been higher (than expected). The Fed raised interest rates by 0.75 percentage point, which ends up weighing on currencies”, says Marco Maciel, partner and economist at Kairós Capital.
Why does Brazil suffer more?
In Maciel’s view, Brazil deals with the “liquidity problem”, that is, as it is a large economy, it has more inflows and outflows of resources when compared to other countries, which causes currency and country risk to fluctuate. . In this way, the Brazilian economy feels more the changes in the global scenario.
“The high interest rates abroad account for 65% of the recent devaluation of the real”, says the partner and economist at Kairós Capital.
Brazil still suffers from internal uncertainties that have aroused recent investor concern. The main doubts are whether the Jair Bolsonaro government (PL) and Congress will intervene in Petrobras’ pricing policy and what the fiscal cost will be to contain the rise in fuel prices.
With an eye on re-election, the rise in the price of gasoline and diesel has become a problem for Bolsonaro, who is in second place in the polls, behind former president Luiz Inácio Lula da Silva (PT).
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Since 2019, when he took office, Bolsonaro has already appointed four presidents to Petrobras – the last choice was Caio Paes de Andrade.
The president of the Chamber of Deputies, Arthur Lira (PP-AL), even debated changes to the law on state-owned companies, also in an attempt to control fuel prices – the law was sanctioned during the government of President Michel Temer and has as one of the objectives to prevent sectors of the Executive and political parties from interfering in the management of state-owned companies.
The market also focuses on what the fiscal cost of the measures adopted by the federal government to mitigate the rise in fuel in the cost of living for Brazilians may be. The government has signaled the creation of a “truck voucher” and increases in the gas voucher and Auxílio Brasil.
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“In the case of Brazil, the movements in June disturbed the markets. There was mobilization (by the government and Congress) around the price of fuel, with forced changes in command (of Petrobras) and possible changes in the law on state-owned companies”, he says. Neto Fields.
In its last minutes, the Monetary Policy Committee (Copom) recognized risks for the economy in the face of uncertainty about the “fiscal framework” and policies that stimulate the economy in an election year. The Central Bank signaled that it should keep interest rates high for longer.