JUST as animals can smell fear in humans, financial markets pounce when they sniff government paralysis and division. So it was with Brazil in late September. In a fortnight the real plunged from 3.8 to the dollar to 4.2. Only when the Central Bank stepped in, offering dollars, was a semblance of calm restored. The immediate reason for the mayhem was the decision last month by Standard & Poor’s, a rating agency, to downgrade Brazil’s credit rating from investment grade to junk. That in turn was the inevitable result of the government’s fiscal adjustment coming apart at the seams.
