September 24, 2015 9:09 am
The powerful head of Brazil’s lower house of congress has warned that in the eyes of investors it is already too late for Latin America’s largest economy to prevent a credit rating downgrade to junk by a second agency.
The remarks by Eduardo Cunha come as the real plumbs new lows against the dollar after Standard & Poor’s earlier this month cut Brazil’s investment grade credit rating to junk, sparking fears that other agencies, Moody’s and Fitch, will follow suit.
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Mr Cunha, whose co-operation is key if President Dilma Rousseff is to pass an austerity programme aimed at staving off further downgrades, cited the plunge of the real as proof that investors have already lost confidence in Brazil. A second downgrade would place Brazil in a different category of risk and oblige many institutional investors to sell their holdings in the country.
“Many people have already left in anticipation, before Brazil has another rating downgrade,” Mr Cunha said in an interview. “In practice, when the news comes, nothing will happen . . . the world that invests in Brazil will have already left.”
The plummeting real, which late on Wednesday was trading at R$4.1784 to the dollar, a depreciation of 3.16 per cent from its previous close and a new record all-time low, is beginning to wreak havoc in Brazilian markets.
The debt-load of highly leveraged companies, such as state-owned oil company Petrobras, is soaring in local currency terms.
Although a leader of the PMDB party, the largest coalition partner in Ms Rousseff`s ruling Workers’ Party, or PT, Mr Cunha has become a key adversary of the president’s proposals for restoring Brazil’s sinking public finances and restoring confidence.
Mr Cunha favours deeper cuts in government spending, dismissing attempts by Ms Rousseff to balance the budget through tax increases that he says the country cannot afford as it slips into its worst recession since the 1930s.
“It is difficult to ask for an increase in taxes if you don’t do your part,” Mr Cunha said. “No one will want to spend more if you don’t cut your expenses.”
Ms Rousseff has backpedalled on several occasions on her targets for restoring Brazil’s budget to a primary fiscal surplus — the balance before interest payments — hurting confidence among investors.
Her government has sought to transfer some of the blame to congress for the growing crisis, citing its resistance to her austerity programme.
But Mr Cunha said the house would resist a key element of her latest programme for restoring the budget surplus — a tax on most bank transactions known as the CPMF.
“We have to work to recover investor confidence,” said Mr Cunha, adding that tax rises were not the right way.
With pressure growing in congress for an impeachment of the president, Mr Cunha said such a proposal should only be entertained as punishment for wrongdoing by the president, not as an “electoral” tool to win government.
Ms Rousseff could face impeachment charges for doctoring government accounts but has not been charged with corruption under the so-called Lava Jato corruption probe at Petrobras. Mr Cunha, along with some 50 other politicians from six parties, is under investigation but has repeatedly denied claims he solicited a $5m bribe.
As house speaker, Mr Cunha has responsibility for considering petitions to impeach the president, including one filed last week by a respected former founding member of the PT, Hélio Bicudo, that has the support of the opposition.
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