Alan Clendenning, AP Business Writer
SAO PAULO, Brazil:
Brazil's president assured investors yesterday that there would be "no return" to the persistent double-digit inflation of the nation's past, despite a change of finance ministers.
President Luiz Inacio Lula da Silva made the remarks to Italian and Brazilian investors a day after the resignation of his respected finance minister prompted steep declines for Brazilian stocks and the value of the country's currency, the real.
Markets were mixed yesterday, with shares on Sao Paulo's benchmark Bovsepa index up nearly one per cent in afternoon trading and the real down 0.5 per cent, stuck below the psychologically important level of 2.2-to-the U.S. dollar.
The new Finance Minister, Italian-born economist Guido Mantega, replaces Antonio Palocci, who was widely viewed as the architect of Brazil's economic recovery and its conservative monetary policy, which prompted slow, sustainable growth and low inflation.
Though Mantega has pledged to maintain the course, investors are worried he might endorse dropping Brazil's sky-high interest rates too quickly and lose control over inflation, currently running at 5.5. per cent.
They also are concerned he may advocate heavier government spending to make the economy grow faster and create jobs as Silva embarks on an anticipated re-election bid this year.
But Silva insisted his administration is not interested in 'magic formulas' for economic policy.
Brazil, which has Latin America's largest economy, uses an inflation-fighting system known as targeting. Under that method, the nation is committed to 2006 inflation of 4.5 per cent with a tolerance band of two percentage points.
If consumer prices appear headed above the tolerance range, the government is required to adjust monetary and fiscal policy to reduce inflation.
Palocci's ouster deprived Silva, known popularly as Lula, of a longtime ally, campaign organiser and Cabinet minister who reassured investors that Silva would not drive Brazil into an economic meltdown as Brazil's first elected leftist president in 2002.
