While Lula had coffee with Campos, from the BC, interest rates rose and Congress freaked out – 09/27/2023 – Vinicius Torres Freire

President Luiz Inácio Lula da Silva met with the president of the Central Bank, Roberto Campos Neto, a meeting arranged by Fernando Haddad in order to “improve the relationship”. Who knows, the weather might even get better. It’s not relevant. Furthermore, in the world outside the meeting room, there was heat and storms.

The climate in finance and politics worsened again. From May to July, there was a wave of optimism. Part of the degradation of the environment has nothing to do with Lula or Campos.

This does not mean that Brazil’s growth prospects will change much because of this. But our prospects are still too mediocre for us to lose a few slivers of GDP.

As has been written so much here, the ups and downs of US finance affect us. The dollar returned to R$5.05 because of the troubled American interest rates. Partly for this reason, interest rates in the market here, those with a term of more than two years, have been rising since mid-August. They are still rising because disbelief has increased that the government will be able to meet its deficit reduction target.

Federal revenue falls, Congress is unfriendly and now this controversy has arisen over how to pay the court debt bill left by the dark government (2019-2022).

Congress had been somewhat at a standstill since returning from vacation, waiting for payment for positions promised by Lula. Not all positions appeared. To make matters worse, the majority of Congress is in revolt with the Supreme Court, for theoretically and abstractly correct reasons – the STF is a monoautocracy that gets involved in politics and often legislates.

In the real and concrete world, there is revolt from the bull and bullet benches, among others less popular, because the Supreme Court said that indigenous people can, indeed, recover lands from which they were expelled before 1988 (“time frame”). The reaction benches are also revolted because the Supreme Court can reduce the punishment for those who carry drugs; because it put another possibility of legal abortion on the agenda.

As this is a conservative or reactionary Congress to a rare degree, the revolt is actually ad hoc, against these specific decisions and initiatives of the Supreme Court. This Wednesday they approved an even more reactionary law on indigenous lands and lives. As a bonus, they promise a PEC to put an end to these monocratic decisions left and right, among other exorbitances of the Judiciary.

Lula has nothing to do with Congress’ dispute with the Supreme Court; even less with American interest rates. But it may be left over for your government. She’s already left.

Arthur Lira (PP-AL), president of the Chamber and sultan of all centers, took advantage of the sururu to reinforce his offensive to obtain the positions that he and his friends want (like at Caixa, but not only). Therefore, Congress is experiencing a mixture of strike, lockout and standard operation. However, the government needs to approve a serious series of projects in order to increase its revenue and put an end to the billion-dollar roll of court orders defaulted by Bolsonaro-Guedes.

In this environment, it becomes more difficult to fix the fixes the government needs in order to reduce its deficit. In the market square, doubts are increasing about the strength of Lula-Haddad’s fiscal plan.

In practice, this means that the owners of big money and their administrators charge more to lend to the government or to keep their holdings in reais (“the dollar rises”). On August 11, the real interest rate on the government bond (NTN-B) maturing in 2029 fell to 4.97% per year; now, it is back to 5.83%. The dollar hasn’t been this expensive since May. This means that the cost of financing consumption and investment has increased; that there is a little more pressure on inflation (with an expensive dollar).

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