The Brazilian government’s mix of economic-stimulus programs are inflationary and probably can’t last, according to former central bank President Arminio Fraga.
“The policy mix now in place may not be sustainable,” said Fraga, the founder of hedge fund and private-equity firm Gavea Investimentos Ltda., which was bought by JPMorgan Chase & Co.’s Highbridge Capital Management unit in 2010.
Since the 2008 financial crisis, President Dilma Rousseff’s administration has tried to boost demand by “pumping credit,” with state-owned banks playing “a very important role,” Fraga said in an interview in Rio de Janeiro, adding that the central bank aggressively lowered interest rates even without low or stable inflation. “That came back with a vengeance,” said Fraga, who is advising Aecio Neves, the likely opposition candidate facing Rousseff in the Oct. 5 presidential election.
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