Exchange rate depreciation in Brazil

In 2018, shortly before the Brazilian presidential election of the neo-fascist captain, we wrote about the significant currency depreciation (NAKATANI & BORGES, 2018).

The economic crisis in Brazil, which began in 2014, had at that moment resulted in a currency depreciation of more than 20% in six months, exacerbated by political instability during the 2018 electoral race. This situation was contrasted with Lula’s election in 2002 and came after the impeachment of Dilma Rousseff and Lula’s imprisonment. The election was marked by a far-right candidate, Jair Bolsonaro, who presented authoritarian proposals, while Fernando Haddad was gaining some support.

Exchange rate volatility was also observed in other countries such as Argentina and Turkey, indicating that global factors, such as U.S. monetary policies, also influenced the Brazilian economy, particularly due to financial market speculation. The increase in U.S. interest rates could intensify capital outflows from dependent economies, leading to more severe currency depreciations.

Would something similar happen today?

It seems not, judging by the following graph:

In a recent video (GOMES, C. 2024), Ciro Gomes presents his version of the current Brazilian currency depreciation. While discussing the recent rise of the U.S. dollar against the Brazilian real, which surpassed R$ 6, he analyzes the causes behind this valuation. According to the law of supply and demand, the exchange rate should reflect the availability of dollars in the market. However, Brazil is facing a dollar shortage, leading to an increase in the price of the U.S. currency. This situation is aggravated by a deficit in the country’s external accounts, which reached 2.23% of GDP, and a deterioration in the trade balance, with a significant drop in the export surplus compared to the previous year.

The analysis criticizes the mainstream media’s manipulation of information and points out that, despite a positive trade balance, other financial accounts are in deficit, contributing to the crisis. The increase in consumption rather than investment in production is seen as one of the reasons for the lack of dollars. The economist suggests that the current economic situation is a reflection of irresponsible policies and questions whether Lula’s government will face the consequences of its actions or if it will manage to postpone the crisis to the next administration.

The former presidential candidate even coined a term for this set of policies:

“Demagogic populist national-consumerism.”

Crossposting

Mastodon

REFERÊNCIAS

BORGES, R. E. S.; NAKATANI, P. Eleição, crise e desvalorização cambial no Brasil. Nuestra América XXI. Desafíos y alternativas, v. outubro, n. 24, 2018.