The dollar reached R$6.10 at the beginning of this Friday (29). Since Wednesday (27), the North American currency has accumulated record highs.
For economists consulted by Brazil Agencyone of the explanations for this increase is the uncertainty of the international scenario marked, among other factors, by the future government of Donald Trump, in the United States, which promises to tax commercial competitors. Another predominant factor was the announcements of spending cuts and tax reform on Income Tax (IR) announced by the federal government.
Brasília (DF) 11/28/2024 – Announcement of the federal government’s spending cuts package. Photo: Fabio Rodrigues-Pozzebom/ Agência Brasil
The main players in the financial market expected a cut greater than the R$70 billion in two years and the R$327 billion in five years proposed by the Executive, according to an assessment by Brazil’s executive director at the International Monetary Fund (IMF) and professor of economics graduate from the University of Brasília (UnB), André Roncaglia.
“The market expected a package of cuts and what came was a package to contain spending growth. The market was frustrated because it expected a more austere path in order to effectively reduce the amount of money spent in aggregate by the government and what the government delivered was to reduce how much spending will increase”, he explained.
The economist and professor at UnB, César Bergo, assessed the Brazil Agency It is also necessary to consider the global scenario marked by uncertainty, in particular due to the administration of Donald Trump, elected president of the USA, who has promised to increase import taxes.
“Especially due to the measures that Trump has been announcing, with protectionism and the issue of taxing businesses and his speech about strengthening the dollar. All of this has affected the price of the dollar. The American monetary policy also contributes, which when in doubt does not reduce the interest rate, so it also strengthens the dollar around the world”, he said.
Instability of the real
Professor André Roncaglia also warns of the external factor, in particular, the instability of the real in the world which, according to the expert, is the third most used currency in the derivatives market, which is a type of financial asset linked to speculation. The real is second only to the dollar and the euro in this market.
“This makes the real an excessively volatile currency. Any sneeze that happens internationally translates here as a cold, flu or even something more serious like pneumonia”, he explained.
Elected US president, Donald Trump promises protectionist management – Photo: REUTERS/Eric Thayer/Rights Reserved
For Roncaglia, as there is uncertainty regarding US policy, interest rates there tend to remain high.
“When interest rates in the US are high, we tend to lose many more dollars in proportion to our peers on the periphery of the system due to this specific characteristic of the real. In other words, the combination of these external elements causes the reaction associated with the internal fiscal package to aggravate a process that is already occurring at the international level, which is the dollar appreciating against all currencies, particularly the currencies of developing countries”, he emphasized. .
Income of the rich
For economist Paulo Gala, professor at Fundação Getúlio Vargas (FGV) in São Paulo (SP) and chief economist at Banco Master, in addition to the cut being more timid than the financial market wanted, agents went into a “panic” when learned about the proposal to exempt workers who earn up to R$5,000.
“The adjustment to the fiscal framework took four weeks and when it came, it came together with a measure that could burden public coffers by an additional R$50 billion if no compensatory measures were taken. In other words, a tax exemption package was mixed up, which was not on the radar, and it was a surprise. Now, there is the fear that the spending cut will not even come and, if it does, it will be compensated with a tax cut”, he highlighted on a social network.
The federal government maintains that any income tax exemption for those earning up to R$5,000 will be offset by increased taxation on those earning more than R$50,000. According to the Minister of Finance, Fernando Haddad, the income reform will be neutral, that is, it will not have an impact on government revenue.
After the rise in the dollar this Friday, the president of the Senate, Rodrigo Pacheco (PSD-MG), went public to state that the IR exemption will depend on the country’s fiscal conditions. “It can only happen if, and only if, we have the fiscal conditions for it. If we don’t have it, it won’t happen,” said the senator.
For economist André Roncaglia, this was a defensive reaction from the market’s main financial asset agents who fear having to pay more taxes.
“The message was poorly received by part of the financial market which, suddenly, was asking for spending cuts and saw that it would have to participate in the adjustment through an increase in taxation on income at the top of the pyramid. Investors end up playing against the real, not because they want to play against the currency, but because it is a defensive reaction, since they don’t know where tax policy is going”, he explained.
