Dear Friends,

This month the Supreme Court overturned the resolution to incarcerate convicted felons after trialed by the appeals court. Much more than releasing bad guys of all kinds, the measure has impacts on various segments of society, besides hurting the financial market and the Brazil’s image to the world. The immediate assessment and direct consequence is that impunity is back, which feeds into expectations of ​​great volatility, of regime change, and this instability creates huge problems.

Unpredictability is a major factor in any attempt at planning ahead, thus limiting and sometimes eliminating every initiative, whether economic or not. In the economic realm, investors love risk but hate uncertainty. This is why we so much need the so-called regulatory frameworks, an independent central bank, an autonomous economic policy, etc. Thus be it in the legal or in the legislative realms, or even the statements by authorities, actions and opinions impact markets quite strongly; and, as a rule, it takes time to ‘adjust’ to them.

The recent Supreme Court ruling (launching of process) requires “adjustments” be made quickly by Deputies or Senators – in one house or another, it doesn’t matter. More than in an uncomfortable situation with the international community, Brazil will witness loss in investment appetite here with such attitudes and tantrums. Worse, the timing is crucial for us to make reforms and attract investment now. Under these messy affairs, the agenda and approvals of projects and reforms are blocked, which undermines the healthy drive, disrupts momentum while arousing diffuse interests. What’s more, the chances of the window of opportunity closing are huge, and missing this opportunity at this time can be a wait for many years to come.

On the other hand – and also important – is the need for moderation in the statements of the authorities. Not only were the president and his children so active on social media (with some retreat this month, quite true), ministers and other officials need to align and coordinate words and opinions. This past month, Minister Guedes once again brought dysfunctionality to the Dollar market with his statements. Guedes looks tired and cranky. Reactions were immediate and the Central Bank itself could not “honor” the slightest much-vaunted intervention – even by its own chairman! A disaster – for the second time! It would do us much good if the Minister were not to comment on the Dollar… Speaking of BACEN, this latter has decided to put a cap on interest rate charged by banks on overdraft accounts. Rationale: inelastic demand, price formation disconnected from marginal cost and, who pays more is who has lower income… how liberal of them! The country is “starting” to get back on track, economic recovery seems to be on the way, we need to strengthen confidence indices… without stumbling and unconditionally!


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