The currency surely is playing a role in the investors decision making. If Brazil could reduce their interest rates I am sure they would but if investors aren’t interested in 41% interest, why would they be interested in less than that?
If the government stumbles, default is inevitable.
A man walking along a road in the countryside comes across a shepherd and a huge flock of sheep. Tells the shepherd, “I will bet you $100 against one of your sheep that I can tell you the exact number in this flock.” The shepherd thinks it over; it’s a big flock so he takes the bet. “973,” says the man. The shepherd is astonished, because that is exactly right. Says “OK, I’m a man of my word, take an animal.” Man picks one up and begins to walk away.
“Wait,” cries the shepherd, “Let me have a chance to get even. Double or nothing that I can guess your exact occupation.” Man says sure. “You are an economist for a government think tank,” says the shepherd. “Amazing!” responds the man, “You are exactly right! But tell me, how did you deduce that?”
“Well,” says the shepherd, “put down my dog and I will tell you.”
The mix of politics and economics is making the situation worse as each incoming politician has to promise things that can’t be kept if they are to be economically viable.
I would suggest separating the central bank from the direction of the President. At least the Central Bankers could control the inflation without the potential of being fired in the middle of the process. One of the things I really, really like about our system is the separation of fiscal and monetary policy. In Brazil and far too many other countries it is not this way and it has a significant impact on the economy
Dr. Douglas Rice 