An interview on spending and growth with the frontrunner to be Brazil’s next president
ago, when Luiz Inácio Lula da Silva was running for president, “it was as if a meteor was going to hit Brazil,” recalls Pérsio Arida, a Brazilian economist. Markets “demonised” Lula, as the leftist former president is known. The currency, the real, lost 35% of its value and Lula had to write a letter to the Brazilian people promising that, if elected, he would not do anything rash. After he won, “the meteor disappeared,” says Mr Arida.
Lula likes to remind Brazilians of how “happy” they were when he was first in charge. But he does not acknowledge that Brazil’s current woes started with his protégée and successor, Dilma Rousseff, also of the. When growth slowed, her government tried to stimulate the economy and shore up political support by borrowing to spend more. This led to a fiscal crisis and Brazil’s worst-ever recession, from 2014 to 2016.
If elected, Lula’s priority will be helping the 33m Brazilians who live on less than 289 reais per month, the highest number since 2012. He says he would increase cash transfers, expand a social-housing scheme and introduce a debt-forgiveness programme. He calls this “putting the poor back in the budget” and bets that it will boost consumption and growth. Theforecasts that the economy will grow by 1.7% this year, because of stimulus spending in the run-up to the election, but by only 0.
Lula’s campaign manifesto suggests the latter. In addition to a classic leftist vision for the economy, it advocates a heavy dose of intervention, describing a “national food reserves policy”, the exchange rate as “an instrument to reduce volatility”, and the need to “Brazilianise” petrol prices. “The [Brazilian] worker earns in reais. So why do you have to dollarise petrol prices?” says Lula. In other words, he wants prices at the pump in Brazil to be divorced from world prices.
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