Bad weather in the USA is a warning for Lula 3 – 04/10/2024 – Vinicius Torres Freire

The wind turned the economy around. This is not to say that it will rain knives tomorrow, with worsening employment or inflation. Economic activity in 2024 continues at a better pace than expected. But the conditions for the economy to grow in the short term (a couple of years) are sour. The need for deeper changes is already evident.

In government, there is a sense of haste, at best. At worst, you happily run into the gambiarra’s embrace. This patch on the electricity bill, which may barely offset the bill for new subsidies for companies, is an example.

The desire to get involved in Petrobras is another. They charge for “deliveries”, that otherwise tacky word, as if the federal government were a small city hall on the eve of an election, inaugurating a pinguela, asphalt and a health center.

The Ministries of Finance and Planning are trying to implement a deeper change plan. They earn the antipathy (or outright anger) of almost everyone else in the government. The conflict between Fernando Haddad (Fazenda) and Rui Costa (Casa Civil) only worsens.

There will not be as much new tax revenue as the government wants in 2024. Congress will maintain at least part of the tax concessions to companies and municipalities, those that the Treasury wanted to overturn.

The revenue from some new taxes and the recovery of others, via disputes with taxpayers, is still uncertain. A new tax in 2025 is very unlikely, when the amount of extraordinary revenue that currently increases revenue collection will not be collected.

The zero deficit target will not be met this year. Although the result may be better than expected in the financial market, it will be insufficient. For 2025, the target will be revised downwards (less surplus, also difficult to achieve). Public debt will therefore grow faster. Interest rates will fall less, another reason for rising debt.

Almost the entire government and Congress want to spend more, give more tax breaks, give more money to states and companies. Federal employees are already on strike or threatening to strike.

The Treasury says there is no money for salary adjustments this year; there will hardly be any in 2025, say ministry staff. Luiz Inácio Lula da Silva, however, encourages civil servants to demand.

The optimism at the beginning of the year with inflation and interest rates in the United States is gone. It’s been more than a year, expectations of worsening and improvement occur every three months or so. Now, we are in the slow season. The American basic interest rate is expected to fall less this year, due to resilient inflation. Higher interest rates there make it difficult to see a greater drop in interest rates here; the dollar becomes more expensive. That’s what we’ve been seeing for a few weeks.

In addition to making productive investments somewhat more difficult, higher interest rates (or those that will fall less than estimated) also inflate public debt.

Rates for a term longer than two years in Brazil are higher than in August 2023, when the Selic (“BC interest”) started to fall. The one-year future interest rate rose again (it was 5.8% per year at the beginning of March, it is around 6.3% now).

What to do for the future?

Part of the “green transition” plan is dripping, but there was no broad program or transformation goals. There is talk of small items, of “deliveries”.

How can we make a technological transition without talking about scientific research and what we want from universities? It’s not talked about. Nor the reform of the SUS, the electricity sector, or national energy and environmental policy. The government is not even convinced that it is necessary to make a rudimentary adjustment to public accounts.

It is not a prediction of collapse. It is a confirmation that we are marking time, dedicated to trifles, in a situation that, in the short term, is going sour.

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