Elections in Brazil: how the economy became the central issue in the fight between Lula and Bolsonaro

SAO PABLO.- Isabela Santana, a 48-year-old unemployed Brazilian woman, takes maximum care of each choice she makes in a market in downtown São Paulo. “Food inflation remains very high and money is enough for little”points out the woman, a beneficiary of Aid Brazil, the president’s flagship plan Jair Bolsonaro of social assistance to the poorest. “This is what worries me the most”acknowledges Santana, who anticipates his vote for Luiz Inacio Lula da Silva.

Fearful of losing support from their bases, and in an attempt to attract skeptical voters in a campaign that is attrition and polarized to the extreme, with high rejection rates for both candidates, the former president and the far-right leader have avoided detailing your concrete plans for the real challenge that Brazil will face after this Sunday’s ballottage: the economy.

Millions of Brazilians depend on the Aid Brasil plan to be able to eat (Photo by Douglas MAGNO / AFP)DOUGLAS MAGNO – AFP

Lula, the candidate with the most votes in the first round and who arrives as the favorite in the polls with 52% intention of valid votes according to Datafolha, avoided announcing who his Economy Minister would be, despite pressure from various sectors to define him, and how he would go about fulfilling his great promise: to return to the years of economic boom of his first terms (2003-2010). Meanwhile, Bolsonaro (48%), who is looking for a historic electoral comeback, has made Aid Brazil and the recent improvements in growth, employment and inflation rates the pillar of his campaign, but he avoided explaining how he will meet the goals for an eventual second term, especially with the explosion of public spending and the promise of raising the minimum wage from 1,212 to 1,400 reais.

“I don’t think he [por Lula] he knows exactly what to do, because he belongs to a party with a left-wing platform, of an increase in the State, of disregard for fiscal balance, of state intervention in the economy, and he will have to deal with those internal demands. But at the same time the Brazilian reality prevails”, points to THE NATION Marcos Mendes, an economist at the Insper institute, who highlights that the duel in the largest Latin American economy will also be key to the future of the region.

discussions about who could be part of the economic team and occupy the position of minister in the event of Lula’s victory, they gained momentum in the final stretch of the campaign. The leader of the Workers’ Party (PT) remains silent, but his latest public appearances with Henrique Meirelles, former president of the Central Bank from 2003 to 2011 and leader of the conservative Union Brazil, reinforced the signs that seeks to provide certainty about their economic intentions. Executive of the financial sector, former Minister of Economy of Michel Temer (2016-2018) and one of the architects of the “expenditure ceiling”, Meirelles he is preferred by the business community to return to that key position, although there are other names in dance. “It gives me a lot of confidence that Lula will repeat a successful experience like her first years,” she said this week.

Former Brazilian President Luiz Inacio Lula da Silva, presidential candidate of the Workers' Party, hugs a female supporter during a campaign rally in Sao Gonçalo, on the outskirts of Rio de Janeiro
Former Brazilian President Luiz Inacio Lula da Silva, presidential candidate of the Workers’ Party, hugs a female supporter during a campaign rally in Sao Gonçalo, on the outskirts of Rio de Janeiro

Lula has left “exit doors” open when asked about economic proposals so as not to position himself too far to the left. She thus sought to attract center voters, such as those of former candidate Simone Tebet (MDB), who gave her her support, and she also obtained the support of economists with a liberal profile.

“Responsible fiscal policy must follow clear and realistic rules,” Lula said Thursday in an open letter, in which he spoke of “combining fiscal and social responsibility.” The former president seeks to get closer to the markets, which after Bolsonaro’s surprising number of votes in the first round reacted with strong increases in the São Paulo Stock Exchange.

The letter came to light due to pressure on the PT to give more details about its economic plan. The campaign already said that would repeal the spending capbut did not reveal what the new fiscal anchor would be and did not clarify where it would obtain resources to finance new programs.

First lady Michelle Bolsonaro at a campaign rally in Brasilia
First lady Michelle Bolsonaro at a campaign rally in BrasiliaSERGIO LIMA – AFP

“There is a great doubt if, in case of winning, Lula will behave as in his first term, much more concerned with macroeconomic balance, the primary surplus and fiscal balance, or as in the second, in which public spending got out of control. It was necessary for him to give clear signals with a credible commitment about what he would do with the economy, but he did not give certainties because he has a very big contradiction,” he told THE NATION Carlos Pereira, a political scientist at the Getulio Vargas Foundation (FGV), who pointed out that the markets expect there to be concrete and rapid definitions of the economic course.

On the other hand, Bolsonaro, who is confident that “Brazil is ready to take off next year”, has already warned that in case of victory, he would leave the neoliberal Paulo Guedes as Minister of Economy, although other names are being considered in the local press. During the campaign, the president maintained a pattern of oscillations in his positions, sometimes contradictory, according to political scientist Josué Medeiros, from the Center for Studies on Democracy, of the Federal University of Rio de Janeiro. Although, winking at the market, he praised Guedes’ management, he has already suggested the intention of recreating portfolios such as Industry and Commerce, which today are under the tutelage of the minister.

Guedes, from the Chicago School and at the head of the Ministry from the first day of Bolsonaro’s term, did not have such an ultraliberal management as expected, according to analysts due to the impact of the pandemic and, this year, due to the needs electoral elections of the government, which led him to open the faucet of spending, write off debts and break the public “expenditure ceiling”, which limits the increase to the inflation of the previous year.

In that sense, the political use and future of Aid Brazil -on which 21.1 million families depend for food- was one of the issues that confronted Lula and Bolsonaro with more harshness. without this money [600 reales mensuales] I couldn’t even feed myself,” he tells THE NATION João Gomes, a homeless man in the central Praça da Sé de São Paulo, the megalopolis that concentrates the strong social and economic contrasts of Brazil.

Like Gomez, dozens of people sleep in precarious tents or mattresses on the floor in this emblematic place in the capital of São Paulo. Nearby, long queues form every day from morning to get a plate of food. Bolsonaro highlighted the post-pandemic recovery of the economy, but it is accompanied by an expansion of the population in extreme poverty and inequality, experts warn.

Like Bolsonaro, who promised to continue with Aid Brazil, Lula also does not explain where he would get the money to finance it starting in January (to the current amount, increased in August, he promised to add another 150 reais per child), and how at the same time will control food inflation. Lula appeals to the nostalgia of the “golden years” of his first administrations, when 28,000,000 Brazilians came out of povertybut economists warn of the difficulties that would be encountered by a global context very different from that of the first decade of the century, due to the impact of the war in Ukraine, global inflation and the slowdown in China.

According to IMF forecasts, Brazil’s economy, which grew 4.6% in 2021 after falling 3.9% in 2020, will regress to 2.8% growth this year and 1% in 2023, a scenario of high difficulty for those who take over on January 1. And experts warn that another challenge will be maintain the recovery of foreign direct investmentwhich although until May accumulated in 12 months the highest value in almost two years (60,021 million dollars) and allowed finance the current account deficitis still far from pre-pandemic levels (69,174 million in 2019 and 78,000 million in 2018).

“There is no doubt that many Brazilians are feeling the effects of Bolsonaro’s economic measures, with the inflation that started to go down [tres índices seguidos de deflación mensual y previsión anual de 5,6%]the unemployment which fell to 8.7% in the last quarter, and this associated with the income transfers they made Bolsonaro more competitive”, explains Pereira. “The unknown is whether these measures are sustainable over time or will only have an effect on the electoral process,” he warns. According to a Datafolha survey, the economy determined the vote of 53% of Brazilians in the first round.

For André Perfeito, chief economist at the Necton consulting firm, the continuity of Aid Brazil poses a “fiscal doubt” for next year, with the latent urgency of 33 million people suffering from a food emergency, according to the Brazilian Research Network on Food and Nutritional Sovereignty (Penssan). “There are a lot of people going hungry and so many others with informal jobs or very low incomes,” he points out to THE NATION Paulo Feldmann, economist at the University of São Paulo.

Yes ok Brazil’s debt with respect to GDP fell to 77.6% compared to the 89% it had reached in the pandemic, analysts warn of the imbalance fueled by the increase in public spending. “The issue is whether or not it will enter an explosive trajectory,” says Igor Barenboim, chief economist at the consulting firm Reach Capital and a professor at FGV. Guedes himself has said that he intends to modify the spending ceiling in 2023 (foreseen at 322,000 million dollars).

Another area with the greatest potential for friction is The price of fuelwhose fall as a result of a tax cut was key to the deflation of recent months. Lula suggested ending Petrobras’ price parity with the international marketsomething already criticized by Bolsonaro, but without committing to a specific model.

“For the changes that Brazil needs, there must be political conditions, in a very divided, impoverished society with enormous inequality. That is why it will be necessary to see in which area the elected president will want to spend his political capital once he takes office, ”says Mendes.

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Elections in Brazil: how the economy became the central issue in the fight between Lula and Bolsonaro