No peace for Brazil's president

Article Abstract:

Seven state governors in Brazil have been very critical of President Fernando Henrique Cardoso, blaming him for the severe financial crisis they currently face. All seven governors are seeking a renegotiation of their debts. Cardoso is also coming under pressure from other sources. It is not entirely certain whether Congress will support the rest of the fiscal and constitutional reforms Cardoso is seeking, and it will be necessary to lower interest rates if the central government's great burden of internal debt is to be eased.

Political activity, Cardoso, Fernando Henrique

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After Brazil

Article Abstract:

Brazil has appointed three central bank governors in three weeks. The Brazilian real has dropped in value. It was previously overvalued, but has dropped too far and this could lead to inflationary pressures. There is a need to stabilise the currency, so interest rates have to be kept high, and markets have to be reassured that fiscal problems can be tackled. The problems of Brazil show that exchange rates should not be kept high over a long period. Brazil still has to bear currency values in mind when setting interest rates.

Exchange Rates, Real (Brazil)

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Still a big risk

Article Abstract:

The Brazilian government's decision to introduce a floating exchange rate will not resolve all the country's economic problems. Indeed, some problems may even worsen in the short term. It is likely that interest rates will remain high, as a floating currency brings greater volatility, which implies risk and will therefore prompt investors to demand high interest rates. The Brazilian government must now focus on completing fiscal reforms, but must also develop a sound monetary policy.

Economic policy

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