Devaluation of the real is linked to the government’s failure to meet targets, says expert

The real overtook the Argentine peso to become the currency with the worst performance in 2024, among emerging countries, on June 17th. The Brazilian currency depreciated by 10.54% against the dollar in the first six months of this year.

Dollar remains at R$ 5.45 in the last exchange rate

Remessa Online’s economic consultant, André Galhardo, explains that Argentina is going through a delicate macroeconomic moment and Brazil is among the 10 largest economies in the world. However, the expert highlights some elements that may be associated with the low performance of the real.

“Part of this terrible performance can and should be associated with domestic problems. The uncertainty regarding compliance with the fiscal target, the uncertainty regarding the change of command at the Central Bank”, assesses Galhardo.

Emerging countries

In addition to the real, other currencies from Latin American countries also lost space to the dollar in June.

Check out the ranking with the biggest drops in emerging currencies against the dollar, with data from Bloomberg (accumulated in 2024 at 4pm on Monday (17):

• Brazil: -10.54%
• Argentina: -10,48%
• Türkiye: -10.12%
• Mexico: -8.50%
• Thailand: -6.95%
• South Korea: -6.52%
• Indonesia: -5.67%
• Colombia: -4.87%
• Chile: -5,73%
• Hungary: -5.77%

According to a survey by the risk rating agency Austin Rating, based on data from the Central Bank of Brazil (BC), the Brazilian currency also surpassed the Argentine peso and is the 5th currency that lost the most value against the dollar in 2024. See the ranking:

Source: Austin Rating, with data from BC

Reasons for the devaluation of the real

Economist Aurélio Trancoso assesses that the main reason for the devaluation of the real is the failure to meet the Brazilian government’s goals in the fiscal framework. On the other hand, in relation to the devaluation of the Brazilian currency against the Argentine peso, Aurélio Trancoso highlights that the opposite has happened in the Argentine country.

“In relation to Argentina, the goals that were set by Milei are being met. He is following them to the letter, he is managing to do almost everything, that’s ok, he is cutting it to the bone, but he is doing everything (that he promised) , the size of the State is decreasing. On the contrary, we are increasing the size of the State”, says the economist.

For him, Brazil should also cut costs and reduce the number of ministries. “What it (the Brazilian government) should do was not spend more than it collects. This is the first thing. Start spending less than it is collecting. Second, reduce the size of the State. Third point, start to understand what it has to cut costs. But you have the right places to cut. The government cannot cut in education, in health”, points out Trancoso.

Aurélio Trancoso points out other possible reasons that reflect the devaluation of the real, such as legal uncertainty and fiscal de-anchoring – when the government spends more than it collects. According to him, the drop in the value of the Brazilian currency, in addition to impacting the purchasing power of Brazilians, also reflects negatively on the country’s international credibility.

“If I have a devaluation of my currency, I practically, first lose global credibility. Brazil, when it comes to importing or exporting products, especially importing products, will import more expensive products. Brazilians’ purchasing power begins to lose, the currency begins to lose credibility in the international market. The country loses credibility. The currency begins to be a weak, worthless currency.

Perspectives

The commercial director at Line Bank BR, a specialist in business credit, from Itu, city of São Paulo, Hélio Lima, highlights the need for fiscal balance for the country in the current scenario.

“For the coming months, in addition to the rise in prices, on the other hand, we hope that the government will take measures that favor the balance of Brazilian accounts. The first measure that urgently demands to be taken is a fiscal adjustment in Brazil. Especially because fiscal balance will also bring an improvement in the trade balance”, he points out.