Team Lula begins to roll in Brazil
Thank you for reading LatinNews' chosen article from the Latin American Weekly Report, produced since 1967. The full report can be accessed here:?Latin American Weekly Report - 5 January 2023
Luiz Inácio Lula da Silva was sworn in as president of Brazil on 1 January, with his record number of 37 cabinet ministers beginning to lay out their policies and priorities. At one level, management of the transition has been impressive. At another, the new administration has communicated poorly, unnecessarily rattling the financial markets.
The inauguration, which gathered some 300,000 supporters in Brasília, went well. The new first lady, Rosangela (Janja) da Silva reportedly choreographed the entire event. The presidential couple were accompanied by Resistencia, a stray dog adopted by his supporters when Lula was imprisoned in Curitiba, the capital of the southern state of Paraná, for corruption.
Since the far-right outgoing president, Jair Bolsonaro, had left the country and the outgoing vice president, Hamilton Mour?o, refused to attend, there was no-one to hand the presidential sash to Lula. Instead, six people selected to represent Brazil’s diversity did so: they included a waste recycler, an indigenous leader, a metalworker (Lula’s former job), a teacher, a supporter from the Curitiba prison vigil, and a 10-year-old from Itaquera in S?o Paulo.
The number of far-right protesters camping out at army barracks to demand an anti-Lula coup d’état, based on totally unsubstantiated claims of electoral fraud, began to plummet. Despite fears of violence, security was effective, and the entire inauguration was peaceful.
Lula gave two inaugural addresses, one at the seat of government in Brasília’s Planalto palace, and another to the nearby national congress. In Congress he focused on the need to rebuild democracy and restore republican values. At the Planalto the focus was on reducing poverty and increasing social rights. Lula said his objective was to govern for all Brazilians, achieving “unity” and “reconstruction”.
The formula has been described as a rejection of both “revenge” (undue persecution of Bolsonaristas) and “amnesty” (allowing them to enjoy unrestricted impunity). As an example, Lula described the former government’s mishandling of the coronavirus (Covid-19) pandemic as a form of “genocide” for which those responsible should face justice.
The incoming administration showed competence in managing the transition. The new 37-strong ministerial team has been assembled with a wide mix of left-wingers, centrists, conservatives, and technocrats. Among the last-minute appointments, Simone Tebet, the former presidential candidate who finished third for the Movimento Democrático Brasileiro (MDB) in the first round of elections last October and is seen as a future political star, was put in charge of the planning ministry; the green activist, Marina Silva, was invited back to the environment ministry; and indigenous leader, Sonia Guajajara, was put in charge of the newly created ministry for indigenous people.
Before taking office, Team Lula had successfully renegotiated the 2023 budget left by the outgoing administration, and which afforded it virtually no room for manoeuvre. Under the ‘transition PEC’ (the name for constitutional amendments) the conservative-dominated congress agreed to waive the spending cap for a year and add R$168bn (US$32bn) in extra social spending.
This is critical since Bolsonaro had left Lula a ticking time bomb: with spending capped, the Auxílio Brasil programme of cash transfers to the poor was set to stop abruptly on 31 December. Approval of the PEC means that, for this year at least, Lula can deliver the R$600 (US$110) per month cash subsidy which was one of his key electoral promises, and which recovers its old name, Bolsa Família.
It also indicates that the new government is showing that it can work with the opposition-dominated congress. Only 181 deputies out of 500 in the lower chamber of congress are members of parties in Lula’s new ruling coalition. However, the ‘transition PEC’ was voted through by 331, showing there is room for negotiation and collaboration. If not guaranteed, governability is at least within reach.
There was one glaring shortcoming in the government’s first three working days in office this week (2-4 January). Poor communication and ill-judged signals seem to have, if not alienated, at least seriously worried the business community and the financial markets, both of which believe that the government has yet to set out a credible fiscal framework to contain the budget deficit and stabilise the country’s extremely high public debt (around 75% of GDP). Reflecting that uncertainty, share prices fell by around 5% in the first half of the week and the real depreciated by around 4% against the US dollar.
Business leaders were disturbed that Lula dismissed the spending cap as “stupid” and in one of his first measures revoked a decree allowing state-owned companies to be considered for privatisation. Finance Minister Fernando Haddad sought to reassure the markets that the government will bring forward a new fiscal responsibility law to replace the spending cap, but few details are available, and a draft is not due to be submitted to congress until April. Tax reform is also promised but here too there is little detail, and any changes will not come into effect until 2024 at the earliest.
The single most important development alienating the private sector was a last-minute decision by the new government to prolong for 60 days a series of fuel tax exemptions that had been introduced by Bolsonaro as a temporary electoral device to reduce prices and increase his chances of re-election. Haddad, who had publicly said the fuel price subsidies would not be extended, was reportedly overruled by Lula’s.
Fuel prices. President Lula’s advisers were adamant that for political reasons fuel prices should not increase in the first weeks of the new government. In any case, Lula is known to favour mechanisms to reduce fuel price volatility and may be tempted to prolong costly fuel subsidies beyond the two months’ point, exacerbating the fiscal problem.??
A degree of market stability was restored by 4 January with Rui Costa, the presidential chief of staff, denying separate rumours that the new government would roll back investor friendly labour and pension reforms introduced respectively in 2017 and 2019. But this did not stop the conservative newspaper?O Estado de S Paulo?from launching a searing attack on the new finance minister. “Haddad learned on his first day in office that he will be a decorative figure, a sort of task worker for President Lula,” the paper said in an editorial, adding that he had been “discredited” and needed to learn to say “no” to the head of state.
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Thank you for reading LatinNews' chosen article from the Latin American Weekly Report, produced since 1967. The full report can be accessed here:?Latin American Weekly Report - 5 January 2023
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