Before the presidential election he won in favor for the third time, Luiz Inácio Lula da Silva argued that the way to fix Brazil’s problems was to “budget the poor” and “tax the poor”. rich”.
The man known as Lula made it clear in comments to reporters this month that his priority was to fight inequality rather than follow a rule restricting public spending.
Beyond the slogans, clues are emerging as to what the veteran left may have in store for Latin America’s largest economy, the incumbent far right. Jair Bolsonaro within reach of double-digit inflation and face possible stagnation in 2022.
Although the 76-year-old former union member will still officially announce his candidacy for the October election, he and senior figures in his Workers’ party, or PT, have made plans to increase public investment, stop privatization, strengthen labor laws and raise incomes. All of this is underpinned by a larger role for government.
“The focus of our party is the popular economy. This means that the Brazilian state will have to carry out a strong agenda in promoting economic development,” said Gleisi Hoffmann, president of PT. “This is done with jobs, social programs and the presence of the state.”
Critics warn such an approach will inevitably repeat the mistakes of the past. PT’s fourteen years in power until 2016 ended with Brazil’s deepest record recession, a major corruption scandal and impeachment of Lula’s carefully chosen successor, Dilma Rousseff.
However, since his back to the political stage after the compound sentences he served in prison were overturned for technicality last year, Lula’s rhetoric attracted many of those who have suffered the most during the Covid-19 pandemic.
According to an opinion poll released by Ipespe/XP this week, the left will win 44% of the vote in the first round compared with 24% for Bolsonaro. However, the 43% rejection rate for potential challengers shows that public support is uneven.
For the nation’s most influential businessmen, the question is what position Lula will take if re-elected. Was it the pragmatist who mostly embraced economic orthodoxy when he first took office in 2003, while eradicating poverty through welfare programs? Or the second-term leader who ushered in an era of ever-expanding state intervention and spending in response to the global financial crisis?
“The hope is that Lula will be financially responsible,” said one investment banker, “and that the absence of economic policies will inevitably lead to the same catastrophe that happened in the Dilma government.” .
For now, the analyst has been reticent about the specifics. Party insiders insist he will not appoint an economy spokesman, seemingly to quell speculation about portfolio candidates.
Eyebrows were raised this month when Guido Mantega, a longtime PT finance minister who finally lost the confidence of investors, was chosen by Lula’s camp to write an article in a series of articles by Lula’s camp. Economic advisor to presidential hopefuls.
While emphasizing that they did not speak for Lula, several participants from a group of about 80 economists who were holding debates with the former president described a vision of economic recovery inspired by US President Joe Biden’s Covid stimulus package.
Aloizio Mercadante, former minister and head of the Perseu Abreu Foundation, a PT think tank that organized the discussions.
Some issues have totem significance for the party, such as the 2017 labor reform that the party claims reduced workers’ rights without increasing employment.
After initial proposals for repeal, the talk among PT leadership is now a negotiated “revision” between government, unions and business groups. Points raised so far include zero-hours contracts, access to employment courts, union dues provisions, and application employee rights.
Other ideas may cause anxiety among investors. With PT opposed to the sale of large state-owned enterprises, Hoffman said the Bolsonaro government’s plan to cut its controlling stake in power company Eletrobras could be “re-evaluated” if it passes.
“If it has an impact on development, it cannot be sustained [that way]. It is a strategic company. What is the logic of handing it over to the private initiative? ” she added.
As the central bank has strong interest rate increasesome economists close to PT criticize reliance on monetary policy to tackle inflation and argue that it is partly played by state-controlled oil producer Petrobras.
The options presented include adjusting the company’s policy on diesel and gasoline prices in line with international markets. Another fund is the “stabilization fund”, funded by taxes on crude oil exports, to help ease the volatility of fuel prices.
“Inflation has many causes – it needs many solutions,” said Pedro Rossi, a professor at Campinas State University.
One potential vote winner is Lula’s call to increase payments under a cash-transfer scheme to the nation’s poorest by 50%, which Bolsonaro has has been enhanced to R$400 ($73) a month.
But given Brazil’s high debt levels, investors’ main concern is the management of public accounts. Currently, a constitutional provision limits public budget growth to the rate of inflation.
Nelson Barbosa, the former economy minister under Rousseff who participated in the negotiations with Lula, argues that this should be changed to accommodate the extra spending aimed at spurring a post-crisis recovery. Covid.
A new framework could involve differential treatment of investment and rules to prevent a drop in spending on health and education per capita.
“It will be an allowed target [spending] Barbosa said. “Some fiscal expansion will be needed in 2023. . . For this to be compatible with economic stability, it will need to be accompanied by a redesign of the fiscal anchors.”
It is possible to pay off investments initially with loans, he added, and then by increasing government revenue through growth and tax reform.
The government is pushing for the introduction of taxes on dividends, reducing the corporate rate and giving tax breaks to low-income earners. But PT wanted a more progressive system.
Some observers believe that Lula will eventually take a dovish stance, especially given the realities of coalition-building for election campaigns and administration in Brazil.
This perception was reinforced during his recent press conference, when Lula said he was open to center-right politician and former rival Geraldo Alckmin as a moderator.
“Markets today have greater hopes that Lula can make a better chair for the economy, more accountable and better able to execute an agenda than Bolsonaro,” the investment banker said. speak.