Business & Economy

Brazil, its image abroad marred, suffering record capital flight

By Carla Samon Ros

Sao Paulo, May 26 (efe-epa).- The firm stance of denial taken by President Jair Bolsonaro regarding the worsening of the coronavirus pandemic in Brazil, the country with the world’s second largest number of confirmed cases, has begun to erode the country’s image abroad and has dealt a serious blow to the confidence of foreign investors in South America’s biggest economy.

Foreign direct investment in Brazil plunged from $5.1 billion in April 2019 to $234 million in April 2020, the lowest figure for the month since 1995, the Central Bank reported on Tuesday.

The amount of money invested by foreigners in the Sao Paulo stock market has plummeted, with foreign investors withdrawing 5.07 billion reais (about $940 million) last month after having removed 24.21 billion reais (some $4.484 billion) in March.

Over the first four months of 2020, the flow of foreign money into the Sao Paulo stock market has turned negative to the tune of about $13 billion.

For the ultrarightist leader, one of the world figures who has been the most skeptical about the seriousness of the Covid-19 pandemic, the implosion in the country’s foreign image is the fault of the “world leftist press” and not the dire health crisis caused by the coronavirus.

However, experts consulted by EFE say that the main sources of concern abroad lie in the lack of political unity and planning in the fight against the pathogen in Brazil as well as in the doubts about the ability of the Bolsonaro government to continue with its neoliberal reform agenda.

According to economist Henrique Castro, a professor at the Getulio Vargas Foundation (FGV) School of Economics, “the Brazilian scenario is one of great uncertainty” and that is spurring foreign investors to conclude that the country’s economy is “risky.”

According to Credit Default Swap (CDS), Brazil’s country risk index this year has climbed by more than 220 percent while the real has become the world’s most devalued currency.

The flight of foreign capital from the Brazilian market began to be felt last year and, according to Castro, it can be explained by the “slow rhythm of the Brazilian reforms.”

Congress approved a pension reform but “it did not manage to move forward with two other important reforms pushed by Bolsonaro, the tax reform and the administrative one” which, with the arrival of the coronavirus, have now been “halted.”

According to the FGV professor, foreign capital in Brazil will only return “if the government manages to provide clear signals that it’s going to be able to move the reforms forward.”

Expressing himself along the same lines was the Necton consulting company’s chief economist, Andre Perfeito, who told EFE that investors are “uncomfortable” with Brazil’s situation because of the government’s “lack of planning.”

Perfeito also emphasized the recent “changes in the Health Ministry” and the constant “fights” between the federal government and the regional governments, which Bolsonaro is pressuring to lift the social isolation measures adopted to limit the spread of the coronavirus and to reopen the economy.

Castro also said that the political crisis had absorbed almost all “the government’s attention in defending the president against accusations charging him with an attempt to interfere in the investigations of the Federal Police.”

The criticisms of Bolsonaro’s administration multiplied in recent days in the international press, which chastised the Brazilian leader for being “the man who broke Brazil” (The Telegraph) and called the country’s situation an economic and public health disaster that could create an even more propitious environment for the politics of fear and irrationality, as the Financial Times remarked.

According to Oliver Stuenkel, a professor of International Relations at the FGV, Brazil is going through a “process of unprecedented international erosion,” although indications of this erosion were already being felt at the end of 2018, when the ultrarightist leader was elected president on an “authoritarian and anti-democratic” platform.

“This worsened with the crisis of the Amazon fires and now it’s at its peak with the pandemic crisis and the poor management of the situation,” he told EFE.

According to Stuenkel, in contrast to other countries like China or Cuba, in Brazil “there exists no ambiguity” and the government is not making the “least effort to mitigate its negative image with the press.”

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