Lula fears accusation of electoral fraud – 03/16/2023 – Market

The imminence of the announcement of the new fiscal rule proposed by the government rekindled in President Luiz Inácio Lula da Silva (PT) the fear of repeating the mistakes of Dilma Rousseff (PT), who changed her economic policy at the beginning of her second term in an attempt to to promote an adjustment in public finances and ended up losing popular and political support.

According to people close to him, the PT’s concern is being accused of electoral embezzlement, after running a campaign permeated by promises to put the poor in the Budget and put an end to the current ceiling —a rule that limits the advance of spending to inflation and, in the PT’s assessment , limits expenses with works and social policies.

The resumption of investments is considered the backbone of Lula’s political platform in his third term.

The president will still discuss the details of the rule with the Minister of Finance, Fernando Haddad (PT), this Friday (17th), but some signs already given by the economic team go precisely in the direction of maintaining some control over the growth of expenses , albeit more flexible than the ceiling.

For this reason, palace advisers are betting on changes in the text that will be presented by Haddad, if the tendency to contain expenses is confirmed, with possible repercussions on investments in works and social programs.

In this case, the proposal would undergo changes in the Planalto Palace. This fear is pointed out as one of the justifications for the discretion that surrounds the debate on the new fiscal rule.

Until the night of this Thursday (16), the draft had not reached the Civil House or the Secretariat for Institutional Relations, responsible for sending the text and articulating it in the National Congress.

The expectation is that the holders of these portfolios, Rui Costa and Alexandre Padilha, respectively, will only have access to the proposal this Friday.

According to allies, Lula has discouraged hurrying to present the proposal, recommending caution in the discussion.

Reports are that the president is very afraid of repeating what are considered mistakes by Dilma, who ended up being impeached in 2016. Collaborators of the president say that it is not uncommon for Lula to guide in a different direction when informed of some practice adopted in the governments of the PT.

He would have proposed that Minister Paulo Pimenta (Secretary of Social Communication) be more creative when he heard his suggestion that the future program of works be baptized as “new PAC”.

In 2015, after being re-elected, the former president appointed Joaquim Levy, an economist with a liberal bias and nicknamed “scissor hands” (in reference to cutting costs), to head the Ministry of Finance.

Levy’s choice took place in a context in which Dilma was pressured by the sharp deterioration of public finances, by the tax pedaling scandal and by the creative accounting adopted in her first term to make up the situation of the country’s accounts.

Levy remained in office for 11 months, a period in which he fought and lost a series of clashes in an attempt to review benefits and exemptions and rescue fiscal credibility.

In the same interval, the Dilma government’s approval began to melt. In December 2015, 65% of Brazilians considered their government bad or terrible, according to a Datafolha poll at the time.

After a close election, Lula fears to follow a similar path, in case Haddad’s proposal represents a significant adjustment in government expenses in the coming years. Therefore, the president has avoided pronouncing on the proposal and, thus, committing himself to full support for the Treasury’s text.

On the other hand, there is also care not to discredit Haddad, who has been working on the proposal for a new fiscal rule for almost three months and is betting on its approval to gain the confidence of the financial market that the country’s accounts are sustainable.

The minister already suffered a defeat at the beginning of the year, when he had to extend the exemption of federal taxes on diesel until the end of 2023 and on gasoline until February 28 of this year.

Just over two weeks ago, Haddad had to overcome criticism even from PT president Gleisi Hoffmann in order to convince Lula to resume charging taxes on fuel, albeit partially, to help rebuild federal revenue and not compromise plans. minister’s adjustment.

In discussions of the new fiscal rule, Haddad has adopted extreme caution. At the Ministry of Finance, only the minister and some of his main secretaries participate in the discussions, so that the details of the proposal remain confidential even to other members of the portfolio.

In recent days, the project’s principles were presented, in meetings also restricted, to the Central Bank, to the Minister of Planning and Budget, Simone Tebet (MDB), and to Vice President Geraldo Alckmin (PSB), who is also Minister of Development , Industry, Commerce and Services.

According to reports, the background to Haddad’s caution is the fear that the proposal will become the target of friendly fire from the PT itself, as happened in the discussion around the taxation of fuels, contributing to the dehydration of the rule.

An eventual leak of the Treasury proposal could also show a new defeat for Haddad, if any of the devices are rejected by the Planalto Palace, in view of the expectation for changes.

The economic team sees it as essential to convince Lula that the new set of fiscal rules is necessary and will have positive effects for the country. Hence Haddad’s intention to present the proposal to Lula in its entirety, without having passed through the hands of his ministerial colleagues.

Once this objective was achieved, eventual internal disagreements and also with party members would have more chances of being contained.

The definition of the new fiscal framework is considered by the Treasury as important to pave the way for the Central Bank to reduce interest rates, as Lula wants. The monetary authority has pointed to fiscal risk as a factor driving inflation projections and, consequently, a reason to keep the Selic rate at the current level of 13.75% per year.

Haddad even intended to present the final design of the fiscal rule proposal before the next meeting of the Copom (Monetary Policy Committee), which will take place on Tuesday (21st) and Wednesday (22nd), seeking to issue a consistent signal to the Central Bank of commitment to the sustainability of the accounts.

However, there is still no certainty about the possibility of meeting this schedule.

In addition to the expectation of changes, the issue has been addressed within the government at different paces. While Haddad’s team sees greater urgency in sending the proposal, Planalto advocates caution in analyzing the text.

In the evaluation of interlocutors from this second group, the very resumption of taxation on fuel and the signaling that there is discussion of the new fiscal rule would already be enough signals for the market and for the Central Bank at this time.

The PEC (proposed amendment to the Constitution) that increased spending stipulated a deadline of August 31, 2023 for the submission of the complementary bill that establishes the new fiscal rule, but Haddad promised to present it this month.