Brazil treasury secretary quits, rattling markets

BRASILIA (Reuters) – Brazilian Treasury Secretary Mansueto Almeida will leave office in August, news that roiled financial markets on Monday as investors worried that a country reeling from pandemic and recession was losing a leading advocate for fiscal discipline.

Brazil’s real fell 3%, one of the world’s worst-performing currencies against the dollar, as stocks slid and interest rates spiked higher against a backdrop of global fears over a second wave of COVID-19 infections.

Almeida, 52, a technocratic public finances expert and holdover from Brazil’s previous market-friendly government, has been a key architect of fiscal policy behind Economy Minister Paulo Guedes. He has a long track record of pushing to shrink Brazil’s gaping public deficit.

He confirmed to Reuters late on Sunday that he would be out of government in August following a mutual decision reached with the Economy Ministry to ensure a “smooth transition.” His departure stoked investor concerns about President Jair Bolsonaro’s government at a precarious time.

Brazil has passed every country but the United States in confirmed coronavirus cases and related deaths, while its economy hurtles toward what could become its worst crash ever.

“If his departure represents a change in the government’s economic policy, the risk of fiscal indiscipline may return and worsen the ‘Brazil risk’ and outlook for long-term interest rates,” said Rafaela Vitoria, chief economist at Banco Inter in Belo Horizonte.

The Bovespa stock index fell more than 2% on Monday and the interest rates curve steepened as borrowing costs rose across all maturities <0#DJI:>.

Almeida not only holds trust in financial markets, he commands respect across the political spectrum in Brasilia, playing a critical role in selling the government’s economic reform agenda and getting Congress to approve a landmark 1 trillion reais ($200 billion) pension reform last year.

“His departure is definitely a major loss for the economic team. However, his legacy for having had a major role in the reshaping of fiscal institutions in Brazil will outlive him,” said Carlos Kawall, director at Asa Bank in Sao Paulo and also a former Treasury Secretary. “Men go, institutions last,” he said.

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