Captain Corona and the blow to the Brazilian economy

While the whole world is taking measures to contain the corona outbreak, one head of government keeps on saying for a long time that we should not worry so much. Who is Captain Corona and what are the consequences of his opinionated policy?

One finds it stubborn, the other finds it downright outrageous. The way in which Brazilian President Jair Bolsonaro is dealing with the corona crisis has provoked varying reactions. He has long described the virus as 'an ordinary flu'. According to Bolsonaro, the population did not have to listen to the call for 'social distancing' from his own health minister. This attitude is partly explained by the contrarian nature of Bolsonaro. But mainly because of his wish to hinder the Brazilian economy as little as possible.

Blessed with nature, cursed with politicians
Brazil is blessed with enormous natural resources, such as large reserves of coal and oil. But on the other hand, Brazil is cursed with very bad politicians. Former President Luiz Inacio Lula da Silva was jailed a few years after his resignation for involvement in a corruption case.

And his successor Dilma Rousseff was impeached in 2016 when it became known that she had transferred unauthorized government money between ministries. After Rousseff's departure, the business community breathed a sigh of relief. Under her leadership, the country entered a very deep recession. In both 2015 and 2016, the Brazilian economy shrank by more than 3%.

Huge unemployment
Since then, the economic recovery has made little impression. Due to the economic malaise, the number of unemployed has almost doubled since 2012 to more than 13 million Brazilians. A small decrease last year is mainly due to Bolsonaro's choice to leave economic policy to specialists, such as businessmen and economists.

He himself admitted during his election campaign that he hardly knows anything about economic matters. But even Bolsonaro knows that another recession is inevitable if you largely shut down public life. And that's something Brazil can't use after the past few years.

Impossible choice
In the meantime, even Captain Corona realizes that the consequences of the alternative - letting the virus outbreak run free - are even more disastrous. Yesterday he adjusted his vision. Bolsonaro called corona 'one of the greatest challenges of our generation'. In the foreign exchange market, traders have already anticipated another blow to Brazil's fragile economy.

You are now getting less than $0,19 for a real. At the end of 2019, that was still almost $ 0,25 and eight years ago even more than $ 0,50. Is there still hope for real? President of the Central Bank, Roberto Campos Neto is fortunately a very smart man who understands the gravity of the situation. He has plenty of room for new measures, such as starting a Brazilian bond buying program. Despite Bolsonaro's stupid course, it is too early to write off the real definitively.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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