Brazil's Levy battles for influence as anti-austerity sentiment grows
By Alonso Soto
BRASILIA, July 29 (Reuters) - Finance Minister Joaquim Levy's role as Brazil's dominant economic policymaker is slipping as he tries to push through unpopular austerity measures aimed at saving the country's investment grade rating.
In a somber briefing alongside Planning Minister Nelson Barbosa last week, Levy announced a drastic cut in fiscal savings targets for this and the next two years, shocking markets and sparking a sell-off of Brazilian assets.
While it was partly forced by plunging tax revenues, the less ambitious goals highlighted how Levy's influence inside the government is being tested by Barbosa, a leftist economist who argues for a more moderate fiscal adjustment.
To make things worse, Standard & Poor's on Tuesday threatened to strip Brazil of its coveted investment-grade rating, raising pressure on President Dilma Rousseff to push for austerity despite stiff resistance in Congress.
The retreat on the fiscal goals ended Levy's honeymoon with investors who until recently saw him as the champion of market-friendly policies, but now doubt he can deliver on promises to fix past mistakes.
"This is the type of thing that could ruin a love affair," said Joao Pedro Ribeiro, an analyst with Nomura in New York. "The interpretation of what happened is that he (Levy) is much weaker in the government."
Officials inside the government told Reuters that Levy remains a powerful figure who enjoys Rousseff's trust, but also that Barbosa is gaining ground.
While Levy, a former Banco Bradesco asset management executive, is pushing for aggressive austerity measures to clean up government finances and bring inflation under control. Continuación...