Opinion – Vinicius Torres Freire: How Lula 3 can still go very well

Luiz Inácio Lula da Silva was a huge success with the public at COP27, the UN climate conference. It can also be a huge critical success.

The change needed to contain the climate disaster is a rare opportunity for Brazil to jump on an advanced train of the world economy. By chance of the international situation, there are other roads open, in trade and investment.

To begin with, the mere fact of ending the dark era (2019-2022) can bring back investments that were blocked because interested companies have, for whatever reason, environmental commitments. The thing goes further.

A well-thought-out “green transition” program can be a blueprint for social and technological progress. What it is?

In the most obvious, zero deforestation, more clean energy, reform of the electricity sector, rational use of land by agriculture, proper use of water, taxation of environmental damage (“negative externalities”, gains for those involved in the business with a negative impact and losses for the society in general).

Even more, it can be a technological research plan to take advantage of Brazil’s natural and comparative advantages in energy and environment (as Embrapa did in agriculture, barely comparing). This green plan, by the way, was in candidate Lula’s program.

Chances or developments in the world situation may favor Brazil. The war in Ukraine, the conflict between the US and China and the risk of fragmenting the world into blocs suggest that a safe supplier, of commodities or more, peaceful and with good relations in general, can win as a destination for purchases and investments.

More immediately, the precarious world economic situation makes Brazil not seem like such a bad place, in particular among so-called emerging countries. It started to fight inflation earlier (in theory, it could lower the basic interest rate sooner) and contained the increase in debt in the post-pandemic, with a bit of luck and problems under the rug (like this infamous Budget for 2023) . The huge increase in interest rates will not, by itself, throw the country into recession. The duckling is less ugly in the degraded world environment.

The fiscal situation (deficits and debt) is dire, but manageable. Somewhat surprisingly, there was no extra financial deterioration because of the election (the problem was coming from 2021).

Please pay attention, this is not a question of CUTTING expenses, but INCREASE, for a record expense, apart from the 2020 of the epidemic. Although this is not free, it was given that it would be necessary to increase Bolsa Família, for example. It should be noted that Bolsa Família took, on average, 0.43% of GDP from 2012 to 2019 (before, it was less); in 2023, it should reach 1.65% of GDP (almost quadrupling).

To do so and take care of other urgent social needs, it is not necessary to increase the primary deficit from the 0.6% of GDP forecast to 2.2% in 2023, as the transitional government wants, and perhaps during Lula 3, the that would be a serious problem (or a disaster).

The dire fiscal situation can be mitigated by a credible debt containment rule and growth-accelerating changes (tax reform, facilitating and encouraging private investment, public-private partnerships in states and cities). For now, given the damage of a decade, that’s what we have for public spending: rice and beans, with the tough steak of some tax hike.

It may be enough to fuel a virtuous circle: low interest rates, more investment, growth and revenue. Saying “screw it” to high interest rates and the dollar is ignorance that leads to the vicious circle of hell and wastes opportunities that knock on the door.