Brazil's Finance Minister Antonio Palocci painted an optimistic picture of his country's economic outlook yesterday, despite the political scandal that has shaken the ruling coalition of President Luiz Inacio Lula da Silva.
Economic numbers have improved since the onset of the crisis, and 'what is important is the trend that the indicators improve,' Palocci told journalists at the conclusion of a meeting with US Treasury officials.
Damage from the political crisis has been contained, Palocci argued. 'Brazil made a 'first world' response to the political crisis,' the minister said. The economy has not stumbled, even though the corruption and vote-buying scandal has toppled Lula's chief of staff, a senior aide to Palocci, the head of Lula's congressional coalition and senior Workers' Party leaders.
'Political problems are responded to with political actions; economic problems are addressed with economic actions,' Palocci said.
Confidence in Brazil's economy remains strong. Brazil's 11-year global Real bond issued last week was oversubscribed six times, reflecting long-term confidence in the stability of the currency and growth.
Many market analysts feel Brazilian institutions are strong enough to weather an economic crisis, and that both political parties nor the business community want it contained without such drastic solutions as an impeachment process.
There is widespread confidence that the current economic policy will be upheld regardless of the corruption scandal. And many investors believe that the political crisis hurts Lula's chance for reelection in the September 2006 presidential race and thereby assures a more conservative government would come to power.
Brazilian markets closed the week on a high note. The Sao Paulo stock exchange yesterday hit a record high of 31,252 points, up 1.7 percent on the day. The Real showed new strength as trading closed the day at R$2.263 (buy) and R$2.265 (sell) to the dollar. Brazil risk dropped to the lowest point since October 1997, with bonds closing the day at 356 basis points above US Treasuries.