Brazil’s ongoing mass protests are a cause for concern for investors, but many are more concerned about the Lula government’s socialist economic policies, which could exacerbate the fiscal spending situation and already high inflation. I am concerned that there is
Brazil has seen mass protests since President Luis Inacio Lula da Silva took power in October, with many criticizing his actions against former Liberal Party president Jair Bolsonaro. He refuses to win by a narrow margin. But it’s the current government’s fiscal and other economic policies that have investors scratching their heads.
Lula, who is from the Workers Party, pledged to increase spending on social assistance programs during the campaign. This month, the country passed a constitutional amendment allowing the Lula administration to circumvent spending cap rules and hand out about $116 a month to families under social welfare programs.
The country’s debt to GDP is currently hovering around 80%. Gabriel Leal de Barros, partner at Ryo Asset Management, said: interview The Financial Times says lax fiscal policy can boost government spending.
“We have to raise taxes or find money to cover spending. We don’t have the space or the time to focus on the efficiency and structural problems of taxation in Brazil,” he said.
“Even one of the best opportunities we have, the Green Agenda, relies on guidelines on fiscal solvency and debt versus GDP trajectory.”
Katrina Butt, senior Latin American economist at Alliance Bernstein in New York, said: Said Reuters said Lula would be careful not to undermine his popularity by implementing unpopular fiscal measures.
inflation concerns
Inflation in Brazil has slowed over the past year, but remains above 5% monthly.according to Research Economists forecast by the country’s central bank earlier this month expected inflation to exceed 5% this year, rising to 5.31%.
The central bank benchmark rate is currently set at 13.75%, the highest in six years. Analysts predict the banks will be slow to cut rates, with rate cuts expected to begin in September.
High interest rates restrain corporate investment and consumption, and are a drag on economic growth. Consumption recovery can also be slow. Low wages and the long-term trend of industrialization exacerbate this problem.
In November 2022, Brazil lowered its 2023 growth forecast from 2.5% to 2.1%. However, some experts believe that Brazil’s economy will grow by only 0.8% this year.
protests and political considerations
On January 8, hundreds of Bolsonaro supporters stormed the Supreme Court, Congress and the presidential palace. Many of them refuse to accept the results of his October election, in which Lula received only 50.9% of the vote compared to Bolsonaro’s 49.1%.
Most protesters argue that Lula’s victory was illegitimate for multiple reasons, including corruption convictions related to his first two terms as president.
The Brazilian military has conducted an audit of the 2022 presidential election and concluded that it cannot guarantee that no fraud or fraud will take place.
Many protesters are also concerned that the Lula government will impose a communist regime. Part of it.
Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc., told Reuters that creditors will be watching closely how political and social dynamics in Brazil play out in the coming weeks. rice field.
“Violent demonstrations attest to the serious pre- and post-election social and political polarization … A volatile and deeply divided political environment and associated high social tensions drive risk premiums to It could keep it high and undermine overall governability.”
Naveen Athrappully is a news reporter covering business and world events for The Epoch Times.