Brazil’s president-elect, Luiz Inácio Lula da Silva, has been playing the mystery for weeks. But it was already an open secret that Fernando Haddad was the strongest candidate to occupy the Ministry of Finance from 1 January, when the new Workers’ Party government takes office.
If there was one long-awaited appointment, and also requested during the electoral campaign, it was that of the Ministry of Finance. A few days ago it became clear that Lula would end up appointing the former mayor of São Paulo and former presidential candidate, despite not being the one the markets like best.
This PT kidney politician is an academic with a legal background, with a doctorate in philosophy and a master’s degree in economics. The suspense surrounding the appointment had caused volatility in share prices and fluctuations in the Brazilian currency, the real.
Haddad, 59, a former education minister, has been a member of the Workers’ Party for 20 years. He had been the presidential candidate of that moderate center-left formation in the previous elections, in 2018, when Lula was tried and jailed, accused of passive corruption.
The appointment of a heterodox-thinking politician to the Treasury post surprised some pundits, as he did little experience in the markets. “It is not yet clear the level of concern of this government for spending in the coming years. Haddad has less commitment on tax matters than the market expects, and less dialogue with Congress than Lula’s former ministers,” said Sergio Vale, chief economist at MB Associates.
Haddad specified that he will look for an alternative formula to the current “spending ceiling”, in force since 2017, a critical point, and which subordinates the increase in spending to the previous year’s inflation, to comply with fiscal responsibility. The stock market suffered a sharp decline after Haddad’s announcement, but later recovered.
Unknown to the Ministry of Planning
The official added that he will work with the person designated to lead the planning. The name of that minister has not yet been revealed by Lula. It emerged that the future president intends to place an orthodox economist there, in order to ease the expectations of economic agents, but it is not clear how this tandem would work.
Brazil has a problem facing a fiscal abyss involving 4.5% of GDP, about 70 billion dollars according to data from the Getulio Vargas Foundation. But at the same time, the president-elect has asked the opposition-dominated Parliament for permission to raise the ceiling on public spending by about 198 billion reais, about 38 billion dollars, to guarantee social benefits to a large mass of people in poverty.
It needs that relief in order to move forward in correcting the tax numbers. Lula, in his two governments, achieved eight years of public numerical surplus and to repeat that result, he would have to make a very hard adjustment, including reinstating the taxes that the outgoing Jair Bolsonaro withdrew to improve his electoral image.
The concern of the markets is that there is currently no credit available due to the global crisis, and the rise in international rates, which could cause a collapse in spending if prolonged without a balance of income. This is the great challenge awaiting the Ministry of Finance, which will have to move with enormous pragmatism.
Source: agencies
Source: Clarin
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.