Looks likely…
Lula's honeymoon with Brazil markets ends amidspending plan fears
By Lisandra Paraguassu
and Gabriel Stargardter
Reuters, November 10, 20228:23 PM GMT-3Last Updated 11 hours ago.
BRASILIA, Nov 10 (Reuters) - Brazilian President-electLuiz Inacio Lula da Silva's brief honeymoon withfinancial markets looked finished on Thursday, as hepushed for more room to grow social spending withoutsetting long-term fiscal rules or naming his top economicpolicymakers.
Brazil's currency and benchmark Bovespa stock index (.BVSP), which rose last week as fears of politicalvolatility subsided after Lula's election victory, plungedaround 4% on Thursday on comments by Lula and detailsof his transition team.
The rout made clear that many investors were donewaiting for more clarity over Lula's key ministerial appointments or details of how he aims to stabilize Brazil'spublic finances.
In a speech to lawmakers, Lula said he aims to prioritizesocial spending over market concerns, questioning thepriority given to key parts of Brazil's economic policyframework.
Investors have called for Lula to restore firm rules for public finances after major outlays by current PresidentJair Bolsonaro through the pandemic and election season. Instead, the president-elect is pushing to dismantle oldbudget rules before settling on the alternatives proposedby his advisers.
Lula acknowledged market reaction in comments toreporters later on Thursday, but sought to downplayinvestors' concerns.
Markets deepened losses after the announcement of four economists aligned with the leftist Workers Party tohandle budgetary issues as part of Lula's transition team, including former Finance Minister Guido Mantega. (vide artigo seguinte)
After markets closed, a key lawmaker who had met withthe transition team confirmed some investors' fears thatLula wanted recurring exemptions from a constitutionalspending cap.
Senator Marcelo Castro, the point man for the 2023 budget, said Lula backed a permanent spending cap waiver for the "Bolsa Familia" welfare program, which isslated to cost 175 billion reais ($33 billion) annually basedon his campaign promises.
The negative reaction to Lula's comments and transitionteam is the latest example of investors delivering animmediate, bruising response to nascent governments' economic proposals, amid a challenging global backdropof high inflation, weak growth and low risk appetite.
QUESTIONING PRIORITIES
In his speech to lawmakers, Lula insisted he wouldmaintain fiscal discipline. But he also questioned thepriority given to parts of Brazil's economic framework, including the spending cap that has been waivedrepeatedly under Bolsonaro.
"Why do people talk about the spending ceiling, but notsocial issues?" he asked. "Why do we have an inflationtarget, but not a growth target?"
Investors, calling for Cabinet picks or clear fiscal rules toshow how Lula intends to conduct policy, were notimpressed.
"In the past few days, the president-elect's focus has beenon signaling a major expansion in social spending, withouta counterbalancing point about fiscal responsibility, whichstrikes a different tone than expected," said Arthur Carvalho, chief economist at TRUXT Investimentos in Rio de Janeiro.
Lula has not yet designated his finance minister and saidhe would consider his Cabinet picks after returning fromthe United Nations climate summit in Egypt next week.
His advisers are already discussing with lawmakers how toopen room for more spending outside the spending cap in order to deliver on campaign promises, including a possible constitutional amendment.
"The signals indicate that the spirit of the (proposedamendment) is very oriented around new public spending. For now, there seems to be no plan for where thoseresources come from and what will be the long-termadjustments," Dan Kawa, TAG Investimentos' chiefinvestment officer, wrote in a client note. "The signals are terrible."
2 minute readOctober 7, 20226:14 PM GMT-3Last Updated a month ago
Brazil's Lula eyes flexible primary surplus target toreplace spending cap
By Lisandra Paraguassu
SAO PAULO, Oct 7 (Reuters) - Economic advisers toBrazilian presidential candidate Luiz Inacio Lula da Silva are looking at two main ideas to replace a constitutionalspending cap, including a flexible primary surplus target, two senior aides told Reuters on Friday.
Lula has resisted pressure to lay out what fiscal rules hisgovernment would follow if he is elected in an Oct. 30 runoff vote against President Jair Bolsonaro.
But he has stressed he will not maintain the spending cap, which only allows spending by the federal government togrow as much as the previous year's inflation. Bolsonaro has also said he is looking at changes to that fiscal anchor.
Lula and advisers in his Workers Party (PT) are lookingfor ways to raise public spending to jumpstart economicgrowth, though Lula will only take his decision after theelection, two party sources said on condition ofanonymity.
One of the proposals involves the establishment of a primary budget surplus target with bands so thegovernment can spend more in the event of an economicdownturn. Currently, the primary budget target is fixed, which, according to the sources, prevents the governmentfrom adopting counter-cyclical actions.
"If (the economy) slows down, you don't have the meansfor the government to act," said one of the sources.
According to the sources, this proposal is Lula's preferredoption. In public statements, he often repeats that Brazilposted budget surpluses every year of his 2003-2010 presidency but admits that the design of a new rule can beimproved.
The sources said that a second proposal would limitspending growth to inflation plus some other unspecifiedindicator to allow a real increase in federal investment.
