Nelson Barbosa replaces the fiscally conservative Joaquim Levy in a move seen to signal an end to an aggressive austerity drive in the country

This article is more than 4 years old

This article is more than 4 years old

Brazilian president Dilma Rousseff named leftist economist and close aid Nelson Barbosa to replace fiscally conservative finance minister Joaquim Levy on Friday, signalling a dramatic break with the deficit-cutting policies her administration has pursued for most of this year.



Barbosa, currently the planning minister, has been one of the strongest opponents of an aggressive austerity drive that Levy led in an attempt to regain the confidence of investors in an economy mired in its worst recession in a quarter of a century.

Rousseff’s office confirmed Barbosa will replace Levy, but gave no reasons for his departure. It was not immediately clear when Barbosa would take over.

Levy’s exit had been expected after Fitch this week became the second ratings agency to strip Latin America’s largest economy of its coveted investment grade.

Faced with the threat of impeachment by her opponents, Rousseff has watered down Levy’s push for austerity, the latest sign that she could abandon market-friendly policies to gain support from her leftist allies in Congress.

But Rousseff’s chief of staff, Jaques Wagner, said the change of minister does not mean an end to fiscal adjustment and her government will continue to push belt-tightening measures through Congress, including a deeply unpopular tax on all financial transactions known as the CPMF.

The government is trying to reintroduce the tax to raise revenues, but Congress is balking at passing it.

Levy, who had been in his post for nearly a year, clashed repeatedly with Rousseff over budget cuts that he sought to improve the country’s fiscal health.

Barbosa is considered a leftist economist in much the same vein as Rousseff and his appointment will be interpreted by some as a return of the policies blamed by critics for sinking Brazil’s economy into recession this year.

“Markets will react negatively because of the good reputation of the departing minister,” said Alberto Ramos, a senior economist with Goldman Sachs in New York.

“And also out of fear that Levy’s replacement will signal a shift back to fiscal populism.“

Before the announcement, speculation that Levy was leaving weakened the real more than 1% and pushed down the benchmark Bovespa stock index 3% to end the day at its lowest since April of 2009.

Barbosa, a former finance ministry official during Rousseff’s first term, has pushed for more flexible budget targets, although he has reiterated Brazil should take measures to stabilise its growing public debt.

The Fitch downgrade this week, though widely expected, reflected the sharp reversal in Brazil’s economic fortunes.

Barbosa is closely associated with the same school of thought that Rousseff subscribes to, which is known in Brazil as developmentalism and which defends high government spending and intervention to protect industries from foreign competition.

A graduate of the New School for Social Research, a US-based college known for its leftist economics teachings, Barbosa was one of the main economic advisers to Rousseff and the architect of her successful low-cost housing program, called “Minha Casa Minha Vida” (My House, My Life). Rousseff has been in office since 2011.

In a year-end breakfast with reporters earlier on Friday, Levy did little to dispel speculation his departure was imminent. He said the government needs to cut spending and seek deeper structural reforms to improve its finances.

“We need clarity from the government to remove uncertainties and return to growth,” Levy said. “The downgrade was a warning call and we have the capacity to change our path.“

There was no immediate comment on Friday evening from the press offices of Barbosa or Levy on the change at the finance ministry.