Euphoria with Meirelles may prove unjustified

The financial market has supported the potential arrival of former central banker Henrique Meirelles at the Ministry of Finance by unmistakably pushing up the Ibovespa stock index and the real, the Brazilian currency. But what may be happening there is a classic case of overpricing.

Mr. Meirelles doesn’t represent a different economic policy from Joaquim Levy, the current minister. Therefore, one can deduct that the current path will be very similar to what the former Central Bank (BC) chief would take and that this is not the main explanation for the adjustment in asset prices. The euphoria with the change in command seems result of the view that Mr. Meirelles would have autonomy to appoint a new BC chief and a new minister of Planning. He would form a more cohesive economic team, capable of imposing on President Dilma Rousseff a consistency in the economic policy that doesn’t exist today.

Dilma under growing pressure to replace Finance Minister

Joaquim Levy and Henrique Meirelles

The process of replacing Finance Minister Joaquim Levy gains ground within the government, with the consequent change in the economic policy’s guidelines. The succession is likely to take place in the beginning of January, according to sources of the political coordination and of the leadership of the Workers’ Party (PT), but the exchange could happen as early as December, if the political and economic crises worsen.