The Brazilian real has fallen 3.8% against the dollar in the last three sessions, hitting its lowest level since July 2021, while the benchmark Bovespa index is down about 5% year-to-date.
The Finance Minister, Fernando Haddad, a politician loyal to Lula who ran an unsuccessful presidential bid for the Workers’ Party in 2018, he has been a major target, and his hometown newspaper, O Estado de S. Paulo, called him a “decorative minister” on Wednesday.
Haddad, a former mayor of Sao Paulo, took office vowing to restore public accounts and challenging himself to present a credible fiscal framework after Congress approved a massive social spending package pushed by Lula.
Lula has said that eliminating poverty and hunger will be the “hallmarks” of your Government, raising fears of rampant spending and poor fiscal discipline.
The markets reacted badly to the first days of Haddad in office, especially after Lula ordered an extension of the fuel tax exemption that could upset the budget, and which the minister had publicly opposed.
“Haddad learned on his first day in office that he will be a figurehead, a kind of chore worker for President Lula”the conservative daily said in an editorial.
The newspaper, which did not avoid criticizing the former president Jair Bolsonaro, added that Haddad had been “discredited from day one” and that he should learn to say “no” to Lula.
Citi analysts said Tuesday that even though Lula’s and Haddad’s first speeches in office were consistent with their baseline scenario, both sounded less pragmatic and fiscally responsible than initially thought.
“In general, they have given the impression of a deaf government, at least with respect to the kind of tone that financial markets want to hear,” BMO Capital Markets FX strategists told clients, adding that their comments could lead to a situation where “inflation reasserts itself.”
On Tuesday, markets were further rocked by statements by Lula’s labor and social security ministers.
the minister Carlos Lupi shocked the market with his comments that the country’s social security system was not in deficit, despite Treasury figures showing a cumulative gap between January and November of 267.9 billion reais ($49 billion).
That was compounded when he said the Lula government would need to review the investor-friendly pension reform approved by the Bolsonaro administration.
Labor Minister Luiz Marinho, critical of a 2017 labor reform approved by former President Michel Temer, said the new Government would prioritize the regulation of labor relations established through cell phone applications and digital platforms.
Source: Ambito
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