The Business Environment in Brazil Is an Absolute Chaos, Says Banker

09/29/2015 - 10h12

The business environment is a chaos and foreign investors are perplexed by the government. The downgrading by other rating agencies is inevitable.

This opinion comes from one of the leading financial advisors in the country, Ricardo Lacerda, who, since he founded his investment bank, BR Partners, in 2009, made more than 90 operations, exceeding R$ 70 billion (approximately U$ 17.5 billion).

Folha - You were more optimistic in 2014 and voted for Dilma Rousseff. Were you wrong about your forecasts?
Ricardo Lacerda - I was one of the first businessmen to publicly point out former Minister Guido Mantega's mistakes. I predicted the re-election of President Rousseff and a more orthodox conduction of economic policy. But I was wrong to think that the President would do it with conviction, that she would opt for a clear and profound adjustment, which could quickly restore the markets' confidence.

Is there a risk that the country will be downgraded by another agency?
Unless there is an immediate and clear commitment to a deep fiscal adjustment, which no longer seems likely to happen, it is certain for me that Brazil will be downgraded by all the agencies. I believe this effect is already largely reflected in the price of the main Brazilian assets –but, of course, a chain-like downgrading will be very negative.

How do foreign investors see Brazil today?
There is a huge bewilderment with the government's complete inability to propose a feasible way out of the crisis. The business environment lives a moment of utter chaos. The government has completely lost its credibility and a stoppage of spending and investment has happened. Entrepreneurs are afraid of going bankrupt, and workers are afraid of losing their jobs. This negative feeling reverberates around the world and affects our credibility with foreign investors.

Would you change anything about the adjustment?
I think the government´s proposal is absolutely disjointed. The maneuver of sending to Congress a deficitary budget was clumsy and then the government failed to articulate any logical reasoning to defend it. Secondly, the government can ask society to make sacrifices, that is fair, but it has to do its part and clearly show what it stands for. It was elected to lead, to show the way, not to submit a budget and ask you to get by and balance it. I think that society does not accept a rise in taxes anymore, the government will have to cut more spending. Otherwise, inflation will do it.

How to fight inflation?
With serious fiscal and monetary policies. Brazil was not the only one in the world to relax such policies in the face of the crisis of 2008. The error was exaggerating in excessively short-term stimulus and not proposing a structural reform. The government failed to know the right time to back off on incentives in order to ensure the health of the accounts. This mix-up took us to a toxic combination of low growth, public debt explosion and high inflation. To reverse this, it takes skill and determination from the government. We are seeing neither one thing nor the other.

Is Joaquim Levy [finance minister] still considered a lifeline by the market? Or is it time for him to leave the scene?
The President has never endorsed the minister or his economic prescriptions as a way for the country to circumvent the crisis. The result is this: a government with conflicting action and leaderless. The minister is a serious professional, a respected scholar, a man with a patriotic spirit who is trying to help his country.

Would it be helpful to change the government? Do you want impeachment?
Currently, there are no technical reasons for impeachment. It seems that President Rousseff is an honorable person. But of course, impeachment has a political dynamics, which is already underway. The President´s political ineptitude and her reluctance to seek new ways put her in an increasingly awkward position.

Translated by DENISE MOTA

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	Danilo Verpa/Folhapress
	Ricardo Lacerda founded his investment bank, BR Partners, in 2009