Panic Over, For Now
Mar 1, 2003
Sovereign bond investors are relieved that the leftist admnistration of Luiz Inácio Lula da Silva promises to meet its financial obligations while pursuing its social objectives.
A year ago, Brazilian financial markets were petrified over the rise of Luiz Inácio Lula da Silva, of the Workers Party, and his subsequent election as president. The question was not if, but when he would default on government debts of $270 billion - voluntarily or not.Alarm over the sustainability of the government's debt burden has since faded, but a good dose of uncertainty over his government's commitment to rational economic policies remains. Although markets rallied after the election, prices remain depressed. In the final two months of 2002, between the election and Lula's inauguration on January 1st, the real recovered by 11%, but still ended the year down 35%.The C-bond, Brazil's benchmark Brady bond, rose 32% from its historic low in August, but was still worth 16% less on January 1st, 2003 than a year earlier.
The new government seems serious about pressing ahead with reforms since the alternatives...
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