Brazil markets tick up despite growing criticism over Lula’s plans

SAO PAULO, Jan 4 (Reuters) – Brazilian financial markets rose on Wednesday even as criticism of President Luiz Inacio Lula da Silva’s economic policies grew, with analysts and a leading newspaper slamming ministers after markets tanked in the leftist’s first two days in office.

Brazil’s real currency and stock market were up after Lula’s Chief of Staff, Rui Costa, ensured the leftist’s administration was currently not considering plans to revise economic reforms.

Lula’s centrist vice president took office as development minister, with a pledge to seek reindustrialization. By midday, the benchmark stock index Bovespa (.BVSP) was up 1% after tumbling roughly 5% in the initial days of 2023.

The real has fallen by 3.8% against the dollar in the last three sessions, hitting its lowest level since July 2021.

Some of Lula’s aides have drawn harsh criticism. Financial Minister Fernando Haddad was dubbed a “decorative minister” on Wednesday by his hometown newspaper O Estado de S. Paulo.

The social security and labor ministers also came under fire after hinting at revisions to investor-friendly pension reforms approved in 2019 and labor measures approved in 2017.

Haddad, a former mayor of Sao Paulo who is to meet privately with Lula later in the day, took office vowing to restore public accounts and with the challenge of presenting a credible fiscal framework after Congress passed Lula’s giant social spending package.

Lula has said erasing poverty and hunger will be the “hallmarks” of his government, sparking fears among investors of rampant spending.

Markets reacted badly to Haddad’s first days in office, especially after Lula ordered a budget-busting extension to a fuel tax exemption which Haddad had publicly opposed.

“Haddad learned on his first day in office that he will be a decorative figure, a sort of task worker for President Lula,” the conservative daily known as “Estadao” said in an editorial, adding Haddad had been “discredited” and should learn to say “no” to Lula.

Analysts at Citi said that despite Lula and Haddad’s first speeches in office being consistent with their baseline scenario, both sounded less pragmatic and fiscally responsible than initially thought.

“In general, they have given off the impression of a government that is tone deaf – at least with respect to the types of tones that financial markets want to hear,” FX strategists at BMO Capital Markets told clients, adding that their comments could lead to a situation in which “inflation will reassert itself and rate cuts will be out the window.”


Costa’s remarks on Wednesday sought to cool investors’ jitters triggered a day earlier by Lula’s social security and labor ministers.

Minister Carlos Lupi baffled the market with comments that the country’s social security system was not in deficit. Treasury figures show an accumulated January-November deficit of 267.9 billion reais ($49 billion). Lupi also said Lula’s government would need to review the investor-friendly pension reform approved by Jair Bolsonaro’s administration.

Labor Minister Luiz Marinho, a critic of a 2017 labor reform approved under former President Michel Temer, said the new administration would prioritize regulating working relations established through cell phone apps and digital platforms.

Analysts at Guide Investimentos said their remarks showed the government remained “in the path of reversing liberal reforms passed by the last two presidents.”

On Wednesday, Costa told reporters “There is no proposal being considered to revise reforms at the moment, including the pension reform.” Costa spoke after an event marking Vice President Geraldo Alckmin’s inauguration as minister of development, industry and trade.

Alckmin, a longtime centrist, said his ministry would have state-run development bank BNDES under its wing, noting it was essential to strengthen the bank’s role amid the country’s search for reindustrialization.

He added it would be important for BNDES to “make an effort to reduce loan interest rates”.

($1 = 5.4797 reais)

Reporting by Gabriel Araujo in Sao Paulo; Additional reporting by Marcela Ayres and Bernardo Caram in Brasilia; Editing by Nick Zieminski and Frank Jack Daniel

Our Standards: The Thomson Reuters Trust Principles.

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