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The Sao Paulo Stock Exchange, which closed Monday with a heavy loss of 3.06% after progressive Luiz Inácio Lula da Silva was sworn in as Brazil’s president, opened Tuesday on the negative ground and, after half an hour of trading, was down 1.46%.
Ibovespa, the benchmark index of Latin America’s largest stock market, fell to 105,598 points in early trading after closing the previous day at 106,376 units, impacted by Lula’s first decisions on economic matters, which caused fears among investors.
And the dollar, for the same reasons and after having risen by 1.52% the day before, began Tuesday’s trading day with a 0.45% increase and was quoted at 5.3844 reais for sale.
Despite reacting positively to new Finance Minister Fernando Haddad’s austerity speech, investors were spooked by Lula’s decision, the first economic one of his government, to maintain current fuel subsidies after saying he would suspend them.
The fuel tax exemption reduces tax revenues, casts doubt on the government’s ability to achieve a surplus this year, and threatens to further increase the already large deficit in Brazil’s public accounts.
Investors also reacted negatively to the progressive leader’s decision to suspend the privatization processes of several companies, including the Post Office and the oil company Petrobras.
In fact, the preferred shares of the oil company, Brazil’s largest company, which fell 6.45% on Monday, once again stood out on Tuesday among those that suffered the largest depreciations, with a drop of 2.40%.