Lula drops hints on Brazil’s economic plans if re-elected

Ahead of a presidential election he is favorite to win for the third time, Luiz Inácio Lula da Silva has argued that one way to solve Brazil’s problems is to “put the poor on the budget” and “tax the rich.” “.

The man known as Lula made it clear in comments to reporters this month that his priority was tackling inequality rather than sticking to a rule limiting public spending.

Beyond the slogans, clues are emerging as to what the left-wing veteran might have in store for Latin America’s biggest economy, which, under outgoing far-right Jair Bolsonaro, is plagued by double-digit inflation and is making facing a possible stagnation in 2022.

Although the 76-year-old former trade unionist has not yet officially declared his candidacy for the October elections, he and figures from his Workers’ Party, or PT, have launched plans to increase public investment, stop the privatizations, strengthen labor laws and increase incomes. All of this is underpinned by an increased role for government.

“Our party focuses on popular economy. This means that the Brazilian state will have to fulfill a solid program to induce economic development,” said Gleisi Hoffmann, president of the PT. “This is done with jobs, social programs and the presence of the state.”

Critics warn that such an approach is doomed to repeat the mistakes of the past. Fourteen years of PT rule until 2016 ended with Brazil’s deepest ever recession, a huge corruption scandal and the dismissal of Lula’s hand-picked successor, Dilma Rousseff.

Yet since returning to the political scene after the corruption convictions for which he served time were overturned on a technicality last year, Lula’s rhetoric has won over many of those who have suffered the most. of the Covid-19 pandemic.

The left winger would get 44% of the vote in the first round against 24% for Bolsonaro, according to an opinion poll published this week by Ipespe/XP. However, a 43% rejection rate for the potential challenger showed that public support is far from uniform.

For the country’s influential business class, the question is who Lula will take over if he is re-elected. Will it be the pragmatist who broadly embraced economic orthodoxy when he first took office in 2003, while reducing poverty with social welfare programs? Or the second-term leader who ushered in an era of increased government intervention and spending in response to the global financial crisis?

“The hope is that Lula will be fiscally responsible,” said an investment banker, “and that he won’t have economic policies that will inevitably lead to the same disaster that happened under the Dilma government”.

For now, the septuagenarian has remained shy about the details. Party insiders insist he will not appoint an economics spokesperson, ostensibly to quell speculation about portfolio candidates.

Eyebrows were raised this month when Guido Mantega, a longtime PT finance minister who ultimately lost investor confidence, was chosen by Lula’s camp to pen a newspaper article in a series of advisers economics of presidential candidates.

While emphasizing that they were not speaking for Lula, several participants from a group of around 80 economists who held debates with the ex-president described a vision of economic recovery inspired by the president’s Covid stimulus plan. American Joe Biden.

“We are not neoliberals, we do not agree with a minimal state, we do not accept a country with this level of inequality,” said Aloizio Mercadante, former minister and head of the Perseu Abreu Foundation, a PT think tank hosting the discussions.

Some issues are totemic for the party, such as a 2017 labor reform which it says reduced workers’ rights without increasing employment.

Following early suggestions for repeal, talks among PT leaders are now focused on a “review” negotiated between the government, unions and business groups. Issues raised so far include zero-hours contracts, access to labor courts, union dues rules and app worker rights.

Other ideas could prove confusing to investors. With the PT opposed to the sale of large state-owned companies, Hoffman said the Bolsonaro administration’s planned reduction of a majority stake in power utility Eletrobras could be “reassessed” if passed.

“If it has an impact on development, it can’t stay [that way]. It is a strategic business. What is the logic of entrusting it to private initiative? she added.

As the central bank has aggressively hiked interest rates, some economists close to the PT criticize the use of monetary policy to fight inflation and argue that state-controlled oil producer Petrobras has a role to play.

Options being considered include adjustments to the company’s diesel and gasoline pricing policy based on international markets. Another is a “stabilization fund,” funded by taxes on crude exports, to help smooth fuel price volatility.

“Inflation has multiple causes – it needs multiple solutions,” said Pedro Rossi, a professor at Campinas State University.

A potential winner is Lula’s call for a 50% increase in payments under a cash transfer program for the country’s poorest, which Bolsonaro has already increased to R$400 ($73) a month.

But given Brazil’s high level of debt, the main concern for investors is the management of public accounts. Currently, a constitutional provision limits the growth of the public budget to the rate of inflation.

Nelson Barbosa, a former economy minister under Rousseff who took part in the talks with Lula, argued that this should be changed to account for additional spending to fuel the recovery from the Covid crisis.

A new framework could involve a differentiated treatment of investment and rules aimed at preventing declines in health and education spending per capita.

“It would be a target that allows [spending] grow, but not explosively,” Barbosa said. “Some fiscal expansion will be needed in 2023. . . For this to be compatible with economic stability, this will have to be accompanied by an overhaul of the fiscal anchor points.

Investments could be financed initially by borrowing, he added, and then by increased government revenue through growth and tax reform.

The government is already pushing to introduce a tax on dividends, reduce the corporate rate and exempt low-wage earners. But the PT wants an even more progressive system.

Some observers believe that Lula will end up taking moderate positions, not least because of the realities of building coalitions for election campaigns and governing in Brazil.

That perception was galvanized at his recent press conference, when Lula said he was open to centre-right politician and former rival Geraldo Alckmin as his running mate.

“The market today has more hope that Lula can be a good president for the economy, more responsible and able to implement a good program, than Bolsonaro,” the investment banker said.

About Mark A. Tomlin

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