Brazil's currency crisis creates a new economic headache
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The Brazilian real is plummeting. Never before has the nation's currency been so weak relative to the U.S. dollar.
Why it matters: Yet another huge economy faces a fiscal mess, with investor backlash adding to pressure to cut budget deficits.
- This time the financial market turmoil in Brazil reflects deep skepticism that Latin America's largest economy will rein in spending.
"Brazil is now in crisis territory," Bruna Santos, the director of the Wilson Center's Brazil Institute, tells Axios.
- Santos says the delay in addressing fiscal reforms "has resulted in this self-inflicted crisis."
The big picture: When Brazilian President Luiz Inácio Lula da Silva — referred to as "Lula" — took office last year, the deficit was roughly 5% of GDP. As of October: 9.5% of GDP.
- The leftist three-term president proposed spending cuts of about $12 billion in the next two years — but with tax exemptions for the poor.
- Now the fate of the budget is up in the air, with the possibility of spending cuts getting watered down, Bloomberg reported.
- Not helping matters: Lula just had emergency brain surgery.
What to watch: Brazil's central bank has intervened four times to stem the currency's freefall this week, after hiking interest rates for the third time last week to contain inflation.
