Brazil's real climbs after Palocci defends economic policies
Brazil's real rose after Finance Minister Antonio Palocci defended and pledged to stick to the country's economic policies in a congressional appearance.
Palocci, who led Brazil to its fastest expansion in a decade last year, used his opening statement to tell lawmakers strong export growth, low inflation and controlled spending are creating immediate benefits for the country.
"Now is the moment to consolidate the government's fiscal efforts,'' Palocci told lawmakers. "We can't let public accounts get out of control.''
The real rose 0.4 percent to 2.2005 per dollar at 2:48 p.m. New York time from 2.2090 late Nov. 14, the second-best performance against the dollar of the 16 major currencies, increasing its 2005 gain to 20.7 percent, the best performance. Brazil's markets were closed yesterday for a national holiday.
At 4 p.m. in Sao Paulo (1 p.m. New York time), when most trading in Brazil ends, it exchanged hands at 2.2020 per dollar from 2.2080 at the same time Nov. 14. The real last week reached 2.1590, its strongest since trading at 2.1375 on April 12, 2001.
Brazil's stocks and currency tumbled on Nov. 14 amid speculation Palocci might step down, threatening policies that have keep spending in check and inflation under control.
Palocci told President Luiz Inacio Lula da Silva that opposition to his economic policies might force him to quit, Folha de S. Paulo newspaper reported on Nov. 10, citing an unidentified person familiar with the situation.
The currency fell 2.1 percent in the next two days while the benchmark Bovespa stock index lost 1.7 percent.
"Composure, Ability''
Brazil's Veja magazine, in its Nov. 2 edition, published allegations that Palocci in 2002 ordered a ex-aide to pick up boxes shipped from Cuba to Brasilia with as much as $3 million for Lula's presidential campaign that year.
The finance minister on Nov. 1 denied the allegations, saying the charges are "full of contradictions.''
Palocci's "composure and ability to explain himself have been very convincing so far, so the testimony may be a determining factor in shortening this crisis,'' Ozaki said.
Palocci moved up his appearance to today from Nov. 22, according to the Senate Web site.
"We don't need a bigger effort, what we need is to extend the effort over a longer period of time,'' Palocci said. "After almost eight years of fiscal efforts we have managed to put debt on a downward trend and that can in the long term -- or even in the short term -- bring about lower interest rates.''
'Political Prowess'
Opposition lawmakers told Palocci before his testimony that they wouldn't use his appearance to probe government corruption allegations and told him to schedule another appearance before a committee investigating the graft allegations.
"My expectations are that Minister Palocci, with his usual serenity and political prowess, will again have the wherewithal to calm down the markets and continue bringing about his policies,'' Trade Minister Luiz Fernando Furlan said at a seminar in Brasilia today.
Palocci, 45, the top economic policy maker in Latin America's biggest economy, needs to overcome all doubts in order to remain in the post, Senator Ramez Tebet of the ruling coalition's Democratic Movement Party, said.
"His destiny may be decided today,'' Tebet said in a telephone interview from Brasilia. "There's no doubt he runs the risk of having to quit.''
Senator Edison Lobao of the Liberal Front, the largest party in the opposition, said Palocci will likely manage to clear up any doubts and may walk out of the hearing with renewed political support.
"By volunteering to come sooner rather than later, he is showing the kind of willingness to clear the air that you expect from an innocent person,'' Lobao said in a telephone interview from Brasilia. "I'm sure he will clarify everything and reassure the country he can continue directing the economy.''
The yield to the 2015 call date on Brazil's benchmark 11 percent bond maturing in 2040 fell to 7.764 percent while the yield to maturity fell to 8.960 percent from 9.020 percent yesterday, according to JPMorgan Chase & Co. The bond's price, which moves inversely to the yield, rose 0.75 cent on the dollar to 121.65.
Elsewhere in the region, Mexico's peso fell 0.2 percent to 10.6647 per dollar, Chile's peso fell 0.1 percent to 524.00 per dollar, Colombia's peso strengthened 0.1 percent to 2,277.95 per dollar, Argentina's peso rose 0.1 percent to 2.9500 per dollar and Peru's new sol weakened 0.1 percent to 3.3620 per dollar.
(Published Bloomberg, November 17, 2005)
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