Lula 3 accumulates populism, protectionism and overflowing accounts

The government of Luiz Inácio Lula da Silva (PT) postponed the announcement of the failure of the zero deficit target in 2024 until March, but is far from demonstrating a willingness to settle accounts or learn from past mistakes.

Resistance can be observed not only by the lack of fiscal austerity and Lula’s declared intention not to restrict spending in the year of municipal elections, but also by the insistence on populist and unsustainable policies.

In line with such initiatives are the resumption of the Growth Acceleration Program (PAC), protectionist policies for national shipyards and the end of disinvestment in refineries, in addition to specific measures such as the adjustment of the minimum wage above inflation.

“The deep economic crisis we are experiencing reflects the exhaustion of a wrong model that combined a dynamic deterioration in government accounts with poorly formulated public investment projects”, says economist Samuel Pessôa, from the Brazilian Institute of Economics (Ibre) of the Getulio Foundation Vargas.

For him, President Lula’s decision to start the government with the “foot on the spending accelerator”, with the Transition PEC, reflected the well-known conception of public spending as an engine of growth.

“It’s an ideological vision, natural in a left-wing government. They think that Korea [do Sul] It is rich because it has an investment bank centralizing everything and promoting wealth. They forget the levels of education, productivity and internal savings of an entire population”, says Pessôa.

One of the biggest problems, the economist believes, is the lack of learning from mistakes made.

“Over the course of 2006 to 2014, the PT government worsened the fiscal crisis, with the primary deficit worsening each year, especially under Dilma’s government. The trade balance worsened and inflation rose gradually, wages grew above labor productivity and the profitability of companies fell, in an unbalanced trajectory and with unsustainable pillars. This deep fiscal crisis that we are still experiencing was them [o PT] they created”, says Pessôa.

PT never criticized itself, but it cannot rehabilitate Dilma

Although the Workers’ Party has never been self-critical of the period, the current government has had difficulty defending former president Dilma’s legacy and rehabilitating her. When presenting the fiscal framework in March, the Minister of Finance, Fernando Haddad (PT) omitted data from the Dilma government’s public accounts.

The revenue and expenditure curve only provided data from 1997 to 2010, hiding the historical gap in subsequent PT governments. In detailing the new rule, which replaced the spending cap, the minister limited himself to saying that “the last ten years have been very difficult for this country”.

In Pessôa’s opinion, although Haddad tried to show economic agents some concern about balancing the accounts, the party never accepted the existing crisis as the result of mistakes in economic policy during his mandates.

“For the PT, the origin of the imbalance was the previous political crisis, the ‘fault’ of the PSDB, which did not accept the results of the elections in 2014 and weakened Dilma’s governability. They also cite the bad external scenario, with the end of the cycle of commodities. At most, they admit a few mistakes in exemptions. Basically, they think they were unlucky”, says Pessôa.

Repetition of mistakes and lost opportunities mark the government

For economist and lawyer Elena Landau, it is nothing new for PTism to blame others for its mistakes. “In the past, the party managed to promote the version of the cursed inheritance… I was against Dilma’s removal for exactly that reason. Her government should have gone all the way to make her responsibility for the lost decade clear,” she wrote in an article in newspaper “The State of S. Paulo“.

The current government, Landau told People’s Gazette, repeats the mistake of “spending up front” before guaranteeing revenue, as illustrated by Haddad’s tireless movement to approve measures that increase revenue from public coffers. “It’s a brutal error that compromises the result. Their basis is the philosophy that expenses generate income. It goes very wrong,” he says.

Economist and consultant Zeina Latif believes that the biggest problem with repeating mistakes is the loss of opportunities. “We have a bad habit of not taking advantage of better periods, when the internal or external scenario is more favorable, to carry out the necessary reforms”, she says.

According to her, fiscal relaxation ends up stimulating populist measures, which, in turn, worsen the fiscal deficit and culminate in a new crisis.

As an example, Zeina cites the approval of the minimum wage policy above inflation. “There is no reason to justify the increase without improving productivity. Our minimum wage is not out of date. And it is the index for a series of benefits that will have a fiscal impact in the future”, she explains.

Outdated industrial policies and subsidies remain on the agenda

In addition to the fiscal deterioration, the current government’s policies, as in the past, continue to focus on public financing, whether through the Treasury, the National Bank for Economic and Social Development (BNDES) or state-owned companies.

“This was the case with direct investments in infrastructure, Treasury subsidies for programs like Minha Casa Minha Vida or student loans like Fies”, recalls Pessôa. “These programs matured poorly and did not generate the expected return, which fed back into the fiscal crisis.”

Many of these “trenches of the past” are being revived. One of the most emblematic, according to Zeina Latif, is the Investment Acceleration Program (PAC), relaunched in August.

“Although it foresees the participation of the private sector, through partnerships, the announcement of the program repeats that ‘big Brazil’ thing, of the inducing State, with voluminous figures to be celebrated”, he states.

Previous editions of the PT program were marked by delays and overbilling. A report by the Federal Audit Court (TCU) pointed out that only 9% of the works in the program between 2007 and 2009 were delivered by the management at the time.

In the second version of the PAC, carried out by former president Dilma between 2011 and 2014, only 26% of the works were delivered. Furthermore, the court pointed out serious irregularities in 32 infrastructure works that received federal resources.

Incentive to the shipping industry and resumption of refineries

Another example of PT atavism is the return of BNDES subsidies for investment in the construction of the naval industry, announced in May, with the so-called local content policy (PCL), which prioritizes Brazilian raw materials and labor in the construction of platforms, ships , probes and refineries.

Criticized by scholars and sector analysts, the policy adopted in previous PT mandates generated negative effects on the development of the industry. “The evidence that the ship construction program went wrong is overwhelming”, highlights Samuel Pessôa.

“No study, in fact, shows that Brazilian shipyards had gains in productivity during the period. On the contrary, investments contributed to the increase in costs of oil companies, especially Petrobras. Petrobras became the most indebted company in the country in 2014”, recalls Pessôa.

The current government also suspended and reviewed all Petrobras refinery sales processes, keeping only those with signed contracts in progress.

“Between 2006 and 2014, the refineries that the government tried to build increased Petrobras’ hole. Only with Comperj [Complexo Petroquímico do Rio de Janeiro] the loss was US$14 billion. With the Abreu e Lima refinery, there was another US$ 10 billion. Now they are talking about resuming. I never heard an explanation of why it went wrong or how it would work now”, says the Ibre professor.

Government talks about “neoindustrialization” with protected industry

For Elena Landau, the resumption of subsidy policies for hand-picked industrial sectors is “completely wrong and outdated”, but it is still unclear whether this is just Lula’s populist rhetoric. “The Lula government has more talk than practice,” she highlights. “We keep talking about neo-industrialization, but we don’t know exactly what that is.”

The neo-industrialization of the country was one of the central points of the document that Lula released before the 2022 election, which advocated taking Brazilian industry into the 21st century. It is not exactly the meaning of the measures announced so far.

For the economist, there is nothing that indicates a change that does not repeat the mistakes of the past, even if it has another name.

“As long as there is no real commercial opening, I am very skeptical of industrial advancement. We have a protected industry, which does not compete with the outside, we do not invest in technology, the government’s mentality in this area is that of the Information Technology Law, of market reserve” , evaluates.

One of the government’s most recent measures was to resume taxation on imported electric vehicles, in order to boost the local automotive industry. In the government’s philosophy, national technological advancement will come from closing the market.

Landau also criticizes the incentives for the energy transition in large companies that have been considered. “All companies know that they need to be ‘green’ in this century, with investments planned for this. The government thinks it needs BNDES for everything,” he says.

The economist also highlights the maintenance of benefits for the Manaus Free Zone through the tax reform. “It doesn’t make any sense,” she says.

Setbacks, rigging and hypocrisy about privatizations

In addition to the repetition of errors, the economist recalls the setbacks already established by the current government. Some managed to be blocked by the Legislature, such as the attempt to review the Sanitation Framework. Others, however, managed to be duly endorsed by the Legislature and Judiciary.

This was the case with the revocation of an item in the State Laws that prevented people who had held political positions from taking office in public companies. The change allowed Aloísio Mercadante to take office as head of BNDES. It also allowed appointments of ministers to boards of directors, as a way of supplementing salaries. The best example is that of Carlos Lupi, from Labor, and Anielle Franco, from Igualdade Racial, appointed to the board of Metalúrgica Tupy.

Landau also cites the prospect of interference in Petrobras’ pricing policy, with delays in setting adjustments, and the attack against the privatization of Eletrobras, for whose board the government demands three more seats. “[Para o governo]capitalizing on Eletrobras is a crime against the country, but the destruction of the company due to Dilma’s intervention via MP 579 was forgotten”, summarizes the economist.