Criticism of Lula’s economic plans mounts as Brazil markets tank

Analysts and a leading newspaper have slammed ministers after local markets tanked in Lula’s first two days in office.

Criticism of Brazilian President Luiz Inacio Lula da Silva’s economic policies grew on Wednesday, with analysts and a leading newspaper slamming ministers after local markets tanked in the leftist’s first two days in office.

Finance Minister Fernando Haddad, a Lula loyalist who ran a failed presidential bid as the leftist Workers’ Party candidate in 2018, has been among the main targets, with his hometown newspaper O Estado de S Paulo dubbing him a “decorative minister” on Wednesday.

Haddad, a former mayor of Sao Paulo, took office vowing to restore public accounts and with the challenge of presenting a credible fiscal framework after Congress passed a giant Lula social spending package.

Lula has said erasing poverty and hunger will be the “hallmarks” of his government, leading to fears of rampant spending and scant fiscal discipline.

Markets reacted badly to Haddad’s first days in office, especially after Lula ordered a budget-busting extension to a fuel tax exemption that Haddad had publicly opposed.

“Haddad learned on his first day in office that he will be a decorative figure, a sort of task worker for President Lula,” the conservative daily said in an editorial.

The paper, which did not shy away from criticising former far-right President Jair Bolsonaro, added that Haddad had been “discredited from day one” and should learn to say “no” to Lula.

Analysts at Citi said on Tuesday that despite Lula and Haddad’s first speeches in office being consistent with their baseline scenario, both sounded less pragmatic and fiscally responsible than initially thought.

“In general, they have given off the impression of a government that is tone deaf – at least with respect to the types of tones that financial markets want to hear,” Foreign exchange strategists at BMO Capital Markets told clients, adding that their comments could lead to a situation in which “inflation will reassert itself and rate cuts will be out the window”.

The Brazilian real BRBY has fallen by 3.8 percent against the United States dollar in the last three sessions, hitting its lowest level since July 2021, while the benchmark stock index Bovespa has dropped roughly 5 percent so far this year.

On Wednesday morning trading, both were little changed.

‘Reversing reforms’

Much of the equities market’s recent drop came on the back of state-run oil giant Petrobras, whose shares are down roughly 9 percent so far this year on fears of a more interventionist stance in the company.

Senator Jean Paul Prates, who was named by Lula to head the firm, has been advocating for higher Petrobras investments in renewables and refining and said he plans to tweak the firm’s investor-friendly fuel pricing policy, which pegs local fuel to international prices and foreign exchange rates.

On top of that, markets were also rattled by remarks by Lula’s social security and labour ministers on Tuesday.

Social Security Minister Carlos Lupi baffled the market with his comments that the country’s social security system was not in deficit, despite Treasury figures showing an accumulated January-November deficit of 267.9 billion reais ($49bn).

That was compounded when he said Lula’s government would need to review the investor-friendly pension reform approved by Bolsonaro’s administration.

Labour Minister Luiz Marinho, a critic of a 2017 labour reform approved under former President Michel Temer, said the new administration would prioritise regulating working relations established through mobile phone apps and digital platforms.

Their remarks showed “the government remains in the path of reversing liberal reforms passed by the last two presidents,” analysts at Guide Investimentos said.

Source: Thanks AlJazeera.com