Embattled Brazilian finance minister Guido Mantega will miss the IDB meeting that is being held in Costa de Sauipe, Bahia, as Brazil tries to pick up the pieces from this week’s Standard & Poor’s downgrade and amid fierce criticisms of fuel subsidies that crippled the finance of Petrobras, an oil company that Mantega also chairs.
S&P downgraded Petrobras along with several banks this week, while Brazil was assigned a BBB- rating on Monday. These came as relations between the financial markets and Mantega, who officially becomes the longest serving Brazilian finance minister in modern history, have become increasingly sour due to his interventionist style.
Brazil will be represented at the development bank meeting by Miriam Belchior, the planning minister who is the IDB governor, and the president of the central bank Alexandre Tombini. Mantega attended previous IDB meetings in Brazil in 2006 (just after his appointment) and in 2002 (when he was the opposition’s economics spokeman).
Mantega is a political survivor (he was first appointed in 2006 by the former president Lula and he has piloted the Brazilian economy through the global financial crisis and beyond), but his longevity does not necessarily denote strength.
“His long presence at the helm goes along a strong perception of deterioration in recent years, which is now reflected in the S&P decision,” said Paulo Sotero, director of the Brazil Institute at the Woodrow Wilson Center in Washington, DC.
The rating agency’s latest move came as a cold shower after recent efforts by Brazilian officials to regain credibility. Mantega himself had recently announced a primary surplus target of 1.9% of GDP and pledged not to use creative accounting tricks anymore, while announcing budget cuts of 44 billion reais (around $19bn).
But Mantega was quick to criticize the downgrade, which he called “inconsistent with the conditions of the Brazilian economy” and “contradictory compared to the strength of its fundamentals”.
“Their decision was announced very quickly after their visit to Brazil 10 days ago. It seems they were not ready to listen. It is like the decision had already been taken,” said a person close to Mantega.
With the left being in power for more that 10 years in Brazil, Mantega has epitomized the transition from an orthodox economic policy model to a development-led approach, which has often taken investors aback. “There is a noisy section of the financial market that does not like such a development profile, which consists in boosting production rather than pleasing the financial markets to make a quick buck,” said an adviser.
The problem is that Brazil failed to deliver the projected economic growth in recent years while inflation remained around 6%.
The divorce between Mantega and the markets generally stem from the perception of public expenditures. When the government says it is going to cut spending, the markets do not take anything for granted. They would rather wait and see when officials will deliver.
Two examples of this will come today (Thurday) with the release of the February fiscal numbers and the social security deficits. “At the moment Mantega is considered quite a weak minister because his credibility is low. He always announces optimistic scenarios that never come to pass,” says David Fleischer, a political scientist in Brasilia. “Even last week, he had a meeting with bankers in Brasilia, and they left very unhappy. They wanted a more pragmatic discussion, but they were unable to get it because of this blatant optimism.”
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