Brazil's Rousseff tries to win over jittery investors at Davos

Fri Jan 24, 2014 11:25am EST

Jan 24 (Reuters) - Brazilian President Dilma Rousseff
defended her administration's management of a struggling economy
on Friday though stopped short of offering concrete steps to
calm investor nerves in the midst of an emerging market
sell-off.
    In what aides described as a major speech designed to regain
foreign investors' trust at the World Economic Forum in Davos,
Switzerland, Rousseff reiterated a commitment to balanced public
finances and inflation targeting amid mounting investor
criticism of her administration.
    "I want to emphasize that we will not be weak on inflation,"
Rousseff said. "On the other hand, fiscal responsibility is a
basic principle of our vision for economic and social
development."
    Rousseff's comments during her first visit to Davos come as
investors turn increasingly pessimistic on the outlook for
Brazil's economic future, with most economists expecting just
2.0 percent growth in 2014, according to a central bank poll.
    Brazil's benchmark Bovespa stock index has fallen 20
percent in the past 12 months, compared with an 8.6 percent loss
in Mexico's IPC index and a 22.3 percent gain in the S&P
500 over the same period. Most investors have blamed the
fall on broad concerns over economic fundamentals, erratic
policy implementation and heavy-handed government meddling in
the private sector.
    Rousseff assured foreign investors that Brazil was a safe
environment, reiterating that contracts would be honored and
that foreign investors have always been "treated well."
    "My government has adopted measures to strengthen that
relationship further," she added. 
    Rousseff made her speech in the midst of a global drop in
emerging market assets as investors fret over the impact of
slower growth in China and future U.S. monetary policy
decisions. Brazil's currency, the real, has also weakened
sharply in recent days, partly due to a rapid currency
devaluation in neighboring Argentina, which could sap trade.
    "Today, the stability of our currency is a central value of
our country," Rousseff said, highlighting recent central bank
efforts to make the currency market more predictable through
currency swap contracts.
    Rousseff, who is widely expected to run for re-election
later this year, did not announce any economic reform measures
in her speech. That may make it tougher to convince investors
her administration is ready to make the changes many of them are
demanding.
    The world's largest bond fund manager, Pacific Investment
Management Co, known as Pimco, expressed concern about Brazil's
deteriorating public finances in an investor note on Thursday.
 
    "The policy mix that has eroded confidence, distorted the
local interest rate market, undermined the currency and injected
credit risk premium into sovereign assets is readily fixable,"
wrote Michael Gomez, co-head of Pimco's emerging markets
portfolio team. "Things could improve from here, if policymakers
rethink their remedies for Brazil's challenges."
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