Brazil's Real at Weakest Level in 12 Years

By Jeffrey T. Lewis 

        SAO PAULO--The Brazilian real slipped to its weakest level in 12 years against the dollar on Friday, extending a slide that began on Wednesday, as concern about the government's inability to get its budget and debt problems under control continues.
        The real was trading down about 1.5% at 3.3408 to the dollar at 2 p.m. local time, after closing at 3.2904 on Thursday. It has weakened from 3.1699 at the close on Tuesday.
        Brazilian Finance Minister Joaquim Levy announced Wednesday that the government is cutting key fiscal targets for this year, next year and 2017. The government's target for its primary budget surplus, a measure of its ability to save, was slashed to 0.15% of gross domestic product for 2015, from 1.1%, and the targets for the next two years were also reduced.
        Efforts to trim the country's debt level, and safeguard its investment-grade credit rating, are being stymied by the country's weak economy.
        "Now we're still waiting to see what the ratings agencies will decide," said Sidnei Nehme, director of the NGO brokerage in Sao Paulo. "If we lose investment grade, then there will be an intense exit of money from funds that can't operate in countries without that grade."
        Brazil's GDP is expected to contract this year, and tax revenue has been much lower than expected. Tax collection fell 3% in the first half of this year versus a year earlier. The soft patch makes it harder to reduce the government's debt ratio, which is now at 62.5% of GDP, raising the risk of a credit-rating downgrade.
        Mr. Levy, who took office in January, has asked permission from Congress to reduce tax breaks and some pension benefits, among other measures, but has faced strong resistance from lawmakers. A steep decline in President Dilma Rousseff's approval rate, now at 7.7%, means the government has little leverage in Parliament.
        Paulo Trevisani
        in Brasilia contributed to this article.
        Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com
        (END) Dow Jones Newswires

        July 24, 2015 13:52 ET (17:52 GMT)

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