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Brazil names new central bank head, eyes reforms

Brazil's interim government on Tuesday named economist Ilan Goldfajn as the new head of the central bank, a key post in the fight to coax the giant economy out of recession.
Ilan Goldfajn, the new head of Brazil central bank

Ilan Goldfajn, the new head of Brazil central bank

Brazil’s interim government on Tuesday named economist Ilan Goldfajn as the new head of the central bank, a key post in the fight to coax the giant economy out of recession.

Israeli-born Goldfajn, 50, will be a lynchpin in efforts to revitalize the country after Michel Temer assumed the presidency in place of Dilma Rousseff, suspended last week to face an impeachment trial that she says amounts to a coup.

The Senate must confirm the banker’s nomination.

Temer’s finance minister Henrique Meirelles announced the nomination, along with the rest of his economic team, which is looking at potentially painful ways to balance the country’s battered finances — a process that Meirelles said would begin with careful scrutiny of the true state of macroeconomic ills.

Brazil is enduring its worst recession in decades. The economy shrank 3.5 percent last year, and the IMF has forecast similar negative growth for 2016.

Inflation is at around 10 percent and the central bank has maintained its interest rate at 14.25 percent for six consecutive months, stuck between fear of stoking price rises and desire to stimulate the economy.

And Brazil’s inability to bridge a widening fiscal gap led to major credit rating agencies stripping Latin America’s biggest economy of its investment grade rating last year.

– Cuts controversy –

Temer says he is planning to start addressing that imbalance through pension system reforms and cuts to the country’s bloated government, although he has sought to calm fears of steep reductions to the Rousseff government’s generous social programs.

Indicating the sensitivity of potential cuts, newly appointed Health Minister Ricardo Barros issued a statement denying that he had suggested tinkering with the constitutional right to universal health care.

Despite saying in an earlier interview with Folha de Sao Paulo newspaper that the government would have to “renegotiate,” as in debt-stricken Greece, he said Tuesday that health care for everyone “is a guaranteed right.”

But Meirelles struck a cautious note Tuesday, saying no measures would be taken before a forensic examination of the situation inherited from Rousseff’s government.

“To establish a (fiscal) target it’s necessary to know what the deficit is this year, what receipts will be, and whether any taxes are necessary. All this will be under analysis this week,” he said.

The finance minister has urged for the new government “to start telling the truth” about the state of accounts.

– US-trained economist –

Goldfajn is an MIT-trained economist who is the chief economist at Itau Unibanco, and has already served in Brazil’s central bank as economic policy chief between 2000-2003. He replaces Alexandre Tombini, who took over the job in 2011.

The central bank described its new head as “a recognized professional with wide experience of the Brazilian financial sector (and) a broad vision of the national and international economy.”

In a column he writes for O Globo daily, Goldfajn said in early April that an interest rate cut is necessary, but must not be rushed. The bank’s next rate meeting will be June 8.

Meirelles said the central bank under Goldfajn would enjoy “autonomy of decision making.”

“The central bank will not have its autonomy questioned,” he said.

The government is planning to ask Congress to pass a constitutional amendment formalizing the central bank’s autonomy “which today is by verbal agreement,” Meirelles said.

– Political instability –

Rousseff was suspended last Thursday by the Senate which will now open a trial, lasting up to six months, on charges that she illegally manipulated budget accounts to mask the depth of the economic woes during her 2014 reelection.

Rousseff says the accounting practices were used by all previous governments and are not an impeachable crime. She accuses Temer of having mounted a constitutional coup.

However, with Brazil battered by economic woes, a massive corruption scandal centered on Petrobras, the state’s biggest company, and months of gridlock in Congress, Rousseff had lost key political support and the impeachment vote passed easily.

The political and economic turmoil comes less than three months before Rio de Janeiro hosts the Olympics, the first held in South America.

Temer not only faces the challenge of dealing with the floundering economy and coup accusations, but potential legal problems.

A Supreme Court judge on Tuesday sent a case seeking impeachment of Temer to the whole court for analysis. An impeachment request has been lodged on the grounds that Temer signed off on the same accounting measures that brought down Rousseff.

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