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Investors Cheer Brazil’s Next Economic Czar
Joaquim Levy, a Former Head of Brazil’s Treasury, Seen Being Named Next Finance Minister
ENLARGE
Joaquim Levy, chief strategy officer of Bradesco Asset
Management Ltd., is seen likely to be named to replace Finance Minister
Guido Mantega.
Thomas Lee/Bloomberg News
Ms. Rousseff will name Mr. Levy as Thursday, possibly with other appointments for her second term that starts in January, the official said. Mr. Levy couldn’t be reached for comment.
The 53-year-old economist will succeed Finance Minister Guido Mantega to assume the top economic post at a crucial time for a resource-rich country hitting a downturn amid declining commodity prices. Brazil is mired in a toxic mix of near-zero growth and rising inflation, and its currency has lost more than a third of its value during Ms. Rousseff’s first term.
Job one for the next finance minister will be preserving Brazil’s coveted investment grade credit ratings. Economists say the rating is threatened by Brazil’s rising debt load and spending gaps. To do it, Brazil must moderate spending—a politically tricky task—and improve the accounting transparency of its national budget, investors say.
“The big challenge for the next minister will be fixing fiscal policy in a country whose economy isn’t growing and with high inflation,” said Luciano Rostagno, chief strategist at Banco Mizuho in São Paulo. “The question of transparency will be very important, since we’ve seen the government lose credibility in the past few years.”
ENLARGE
Even more important for investors, the move appears to signal a move toward more conservative policy-making for Ms. Rousseff. During the presidential campaigns, Ms. Rousseff ran campaign ads portraying bankers maniacally laughing as food disappeared from the plates of the poor. Just weeks later, the former Marxist rebel is appointing a banker to her cabinet.
Mr. Levy’s appointment is likely to rankle some of Ms. Rousseff’s left-wing supporters, who see the institutions he worked at as bastions of conservative economic ideas they oppose, like strict control of money supply. These supporters could create political trouble if Mr. Levy introduces polices that are later seen as hurting growth.
“Left-wing elements within the party are, as one would expect, unhappy with the choice of Mr. Levy,” said Tony Volpon, an economist who follows Brazil at Nomura Securities.
Ms. Rousseff is tapping an economist who has faced economic adversity before. Mr. Levy was part of an economic team that took over in 2003 under then President Luiz Inácio Lula da Silva amid a plunging currency and concern that the country would default on its foreign debt, including the dollar-denominated debt known as Brady Bonds. Mr. Levy and other officials at the time succeeded in instilling confidence through more conservative policies, such as debt reduction.
“I took over the treasury from him and he left it in good order,” said Carlos Kawall, chief economist at Brazil’s Banco Safra, who became head of the treasury when Mr. Levy left in 2006. “He did very important work that wasn’t very visible. Brazil reduced its foreign debt, eliminated the Brady bonds and paved the way for winning an investment grade” debt rating.
Mr. Levy studied naval engineering as an undergraduate and earned a Ph.D. in economics from the University of Chicago in 1992. He worked at the International Monetary Fund until 1999, including stints in the Fund’s capital markets and European Union divisions.
Despite his preparedness, turning Brazil’s economy around won’t be easy. With a rising debt load, inflation and deficits, “the inescapable macro adjustment from prior policy excesses and idiosyncrasies is already in motion and is expected to continue throughout 2015,” writes Goldman Sachs economist Alberto Ramos.
But his biggest challenge may be carving out independence in a government run by Ms. Rousseff, who has earned a reputation over the years as a headstrong manager who plays a heavy hand in economic policy.
“Markets will give him the benefit of the doubt at first, but then they’ll want to see that the president is letting him do his job,” said Frederico Mesnik, a founding partner at the Humaitá Investimentos asset management firm.
— Paulo Trevisani contributed to this article.
Write to Luciana Magalhaes at Luciana.Magalhaes@dowjones.com, Rogerio Jelmayer at rogerio.jelmayer@wsj.com and John Lyons at john.lyons@wsj.com
