As the Brazilian currency, the Real, reached its all-time lowest nominal value against the U.S Dollar this week, the government has been battered with criticism. Often held up by the liberal right as a sign of inept governance, the weakened Real has come back to bite many pundits on the rear end. But while the currency devaluation has an impact on inflation and investments, the slide of the BRL may not be nearly as bad as it seems.
So far in 2019, the Brazilian currency is 15 percent down against the U.S Dollar, making it the second-worst performing coin in Latin America, only behind the 60 percent dive of the Argentinian Peso. The BRL’s slide accelerated after November 6, when the government’s pre-salt oil auction ended up frustrating market expectations of a large influx of foreign investment. Only two of the four pre-salt oil fields on offer received any bids, with the vast majority going to Brazil’s state-owned oil firm Petrobras.
According to Alfonso Esparza, a financial market analyst at brokerage Oanda, the internal situation is less to blame for the struggles of the Brazilian Real—the main culprits come from outside.
“I see [the BRL’s devaluation] as a combination of factors. The trade war is a big one. It has triggered risk aversion, big investors are going to safe havens like the Swiss Franc or Japanese Yen,” he told The Brazilian Report. “The other part is regional, with protests breaking out all over Latin America. There’s a lot...
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