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Lula da Silva presented his third term as head of the Brazilian government last Sunday in society with two almost identical speeches, in Parliament and to the Presidency, which had singular moments.

One of these was when he condemned the nefarious indifference and gigantic incapacity of his predecessor, the populist Jair Bolsonaro, who brought Brazil back to the list of hungry countriesa UN category that contradicts the potential wealth of the greatest Latin American power.

“The return of hunger is a crime, the most serious of all, against the Brazilian people. It is the daughter of inequality, which is the mother of all the evils that hold back Brazil,” he said in a sentence that he did not admit arguments.

But that observation, among others on hereditary inequality, seemed to justify the idea of ​​a decadent before and a decadent after in the message. an exclusive state that solves these and other abysses. The social bomb against the tax bomb.

From there the doubts began. Satisfying these social needs, which the new president has rightly referred to as “the hallmark” of his third presidency, requires significant funding, which he has already obtained. But avoided indicating which expenses it will cut and which subsidies it will reduce to prevent these items from accentuating the imbalance in the country’s accounts.

He has not even defined a fiscal anchor, ignoring the request to do so by his former ally at the central bank, Henrique Meirelles. This device is the key to deactivating what economists who were in those administrations like Marcos Lisboa warn about the fact that “the country faces a worrying scenario of public spending and weakening of fiscal rules”.

While those signs were absent, Lula described how “stupidity” the legal ceiling on public spending that Meirelles established during his brief tenure as minister of the economy. He seemed to be speaking back to the rostrum, as if he were still in the country or obeying that Machiavellian maxim that it’s hard to keep people convinced.

It is precisely in the labyrinth of the public treasury that, minutes after the government took office, the the first disagreement in the brand new PT cabinet.

The fuel trap​

Bolsonaro, with a view to improving his electoral image, had imposed an irresponsible exemption from federal taxes on fuel. It served to artificially reduce inflation due to the downward trend in general prices that the measure produced. but so deprived the Treasury of 52.9 billion reais, about 9.9 billion dollars a year.

Fernando Haddad, the new Minister of Economy and whom the markets frown on because he comes from the hard core of the PT, although they should review this displeasure soon, opposed the retention of those exemptions. He had announced that they would end as soon as the new government started, probably because he had discussed it that way with the president.

The minister has tried to reduce the fiscal deficit calculated at around 220 billion reais, about 40 billion dollars. The standardization of fuels, in fact, represents a fifth of that figure.

But Lula denied Haddad. The president has just sworn that he signed a decree that one year extension the exceptions for diesel, biodiesel, domestic gas among other inputs considered popular and of two months for petrol and the gas used by vehicles.

It is also possible that it is an advance. The political wing of the party was surprised by those gaps which it considered narrow and raised that the costly exception should be at least a year and for all products.

This was one of the reasons the markets have collapsed the Monday following the presidential inauguration with a drop of 3.24% of the São Paulo Stock Exchange and of 6% only of that of Petrobras. The market lost another 2% on Tuesday and the dollar was up 3.3% in the first two days of the year.

Lula seems to have preferred this consequence even to the detriment of his minister’s credibility, because disarming this trap would have caused a rising inflation: bad reception for the new government. And the possible reaction of truck drivers and taxi drivers who are a firm trunk of Bolsonaro and argue against power with blockades and pickets.

They are clues to a trap that is just starting to creep in. According to some rumors in Brasilia, the government missed the opportunity use his huge initial political capital to start fixing the public finances, always a painful procedure, today or tomorrow.

The markets are selfish, even if in this case the fear that this behavior confirms what Lisboa, former secretary of economic policies in the first Lula government, weighed heavily.

“If the widening fiscal imbalance continues in the near term, debt could get out of controlinflation would rise, as would the interest rate (today at 13.75% per annum) and there would be a recession”, he summarizes.

Social bomb and tax bomb

It happens that the funds needed to contain the poverty that involves 20 million families and the 33 million people who have no access to food, produces a loss in the public accounts. But it is possible to undo this imbalance with new revenues and cutting other spending. These are the things Bolsonaro didn’t do.

This social and fiscal bomb has now landed on the shoulders of Lula, who on the opening Sunday used it as a furious rhetorical bullet about the private and public economic system that preceded it, as if the new era that is beginning did not also with objective limits.

Brazil, according to very homogeneous estimates, will spend from nearly 3% growth in 2022 to 1% in 2023 then the fiscal quagmire, i.e. the budget limits, will be more evident.

Lula had an initial success in negotiating with a much tougher Congress than the one that welcomed him in previous terms and where he only 12% of the seats.

This year he got his budget green light and a huge amount of 145 billion reais (about 30 billion dollars) to finance social assistance plus another 23 billion reais with no deadline..

This step is essential, in theory, to neutralize the risk of outbreaks and advance the adjustments required by an economy that will lose muscle. Lula has assembled a team ostensibly for that purpose.

He combined Haddad’s heterodox moderate with two liberalsits vice-president Geraldo Alckmin in Industry and Senator Simone Tebet, a right-wing landowner, in Planning, for budget control and public spending.

But the question of fuel taxes and the barricaded tone of the inaugural speeches, they liquefied the expectation who opened those appointments.

“We’re not adventurers, we’re pragmatists,” Haddad proclaimed helplessly on Monday, trying to stave off the bad temper of his inevitable market partners.

Not surprisingly, the fall only stopped on Wednesday when Petrobras made it clear the fuel price will not have intervenedyes, backtracking on the dedollarization of those values ​​promised with saucers in the countryside.

There may, therefore, be another dimension to this circumstance. For some observers, the inauguration ceremony revealed a certain resentment of the new president against a system that criticizes him but endorses the incongruous and anti-liberal management of Bolsonaro. Furthermore, it landed him in jail despite him achieving the highest accumulation rate in history for banks and private companies in Brazil under his governments.

Lula’s passion for multiplying their faces could have prevailed even in these decisive hours.

It is a device that he has already practiced and which is now noticeable in appointments such as that of Carlos Favaro in Agriculture, a leader of the Brazilian soybean agro-industry very Bolsonarist, a condition that certainly frightens the new Minister of the Environment, Marina Silva, with whom he will coexist in government.

By the way the legendary green minister You must be concerned enough about the fossil fuel stimulus that involves maintaining the gasoline tax exemption. Necessity is heretical, they will tell you.

These contrasts are multiplied in the multitude of 37 portfolios that he distributed among politicians of the left, right and something of the center. This is also Lula’s complex bet, contradictory or strategic, depending on who you talk to.

Brasilia. Special delivery

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