Lula Government: the challenges of Fernando Haddad in charge of the Ministry of Finance

After weeks of speculation, the former mayor of São Paulo and former Minister of Education Fernando Haddad was announced this Friday (9th) as head of the economic area of ​​Lula’s third government, which begins on January 1, 2023.

Haddad, a PT cadre who has gained prominence and strength within the party over the past decade, will face complex challenges in a sector that will be vital to the success of the next government.

The Brazilian GDP (Gross Domestic Product) lost strength in the third quarter, basic interest rates are at a very high level (13.5% per year) and there is a prospect of an international recession on the horizon.

The economic area of ​​the elected government began to be tested right after the confirmation of the victory in the second round.

Statements by Lula placing social programs among his priorities led the market to show signs of concern about fiscal responsibility from next year – although the Jair Bolsonaro government has exceeded the spending ceiling by almost R$ 800 billion in four years.

There was pressure for a quick definition of the future responsible for the economic area, but Lula withheld the announcement until approaching the moment of his diplomation as President of the Republic, which takes place next Monday (12).

The sector should have a different composition in the government. The superministry of the Economy under Paulo Guedes will again be divided into three different portfolios: Finance, Planning and Industry and Commerce.

Haddad, 59, has a master’s degree in economics. He also holds a degree in Law and a PhD in Philosophy —all courses at USP (University of São Paulo), where he is currently a professor of Political Science.

He was an investment analyst at Unibanco and a consultant at Fipe (Fundação Instituto de Pesquisas Econômicas), where he was one of those responsible for creating the Fipe Table, which is still one of the main references for the value of trading cars.

The first hour challenges

Juliana Inhasz, a professor at Insper (Institute of Education and Research), says that Haddad “has a bomb in his hand”.

She says that the expansion of the government spending ceiling by R$ 145 billion (approved in the Senate and now going to the Chamber) does not resolve the limitations that the new Minister of Finance will have to face.

“The expansion of the ceiling includes a number of resources for Bolsa Família [atual Auxílio Brasil], for a certain increase in the minimum wage and a few other things. But the government’s program, looking at the social aspect, is much more ambitious. So we’re going to have to understand how to put all these demands into the account, considering that most likely 2023 is not a year of great economic growth.”

Samuel Pessôa, researcher at the Brazilian Institute of Economics (FGV) and columnist for Sheetconsiders that “the greatest difficulty for Haddad will be dealing with a large set of structural reforms to guarantee a fiscal solvency situation. The Brazilian State has less revenue than it needs to face the obligations of maintaining the debt at a controlled level “.

Inhasz points out that Haddad will have to create spaces for the economy to grow without the help of the external sector. The outlook is for low global growth in 2023.

“It is a very different scenario from 2003, during Lula’s first term. It is a Brazil with high inflation, high interest rates and which will not have room to rely on the external sector.”

For the economist and Unicamp professor Luiz Gonzaga Belluzzo, Haddad will have to rebuild the conditions to execute an economic policy “effective from the point of view of larger objectives”.

“And the immediate objective is to face extreme poverty and the precarious situation of a very high number of workers.”

In Belluzzo’s view, it is necessary to recover public investment, “very demonized in previous years”, and which fell to a very low level, 0.21% of GDP.

“All of this has to be done with a lot of criteria and a perceptive vision regarding the relationship between State spending, income recovery and the effects on tax revenue. As everyone knows, or should know, tax revenue stems from income. “

“The collection of income tax increases, as well as the value of transactions of goods, on which around 50% of the tax burden falls. This helps to recover tax revenue.”

Nelson Marconi, professor at FGV-SP (Fundação Getúlio Vargas) and coordinator of Ciro Gomes’ program in the last two presidential campaigns, analyzes that the government’s broader challenge is to restructure the country from a productive point of view, “including to reduce this polarization policy”.

“I understand that if this issue is not treated from an economic point of view as a priority, we will continue to have a very polarized society, very unequal, with few people receiving adequate remuneration, and the tendency is for us to see increasingly radical positions “.

Marconi says that the tax issue is discussed a lot, but he defends giving prominence to the productive sector.

“To arrive at this scenario of productive modernization, one of the main stones is in the tax and fiscal issue. I understand that, in charge of the Ministry of Finance, this task of improving the fiscal situation and forwarding the tax reform will be very clear. I think it is his biggest challenge. And for that he needs to have good traffic in Congress.”

Haddad and the negotiation with Congress

In the period before Haddad became official, the PT federal deputy Alexandre Padilha was pointed out as a possible candidate to command the economic area. One of the traits pointed out in favor of his appointment was that of a good political negotiator.

“Haddad will have to show that he is willing to negotiate, to be a little more political”, says Marconi.

Inhasz, from Insper, states that Haddad “is a very peaceful guy and whoever goes to the negotiation table will have to hit the table harder. Often to make the parliamentarian understand that it is not his amendment that has to come out, but it is the amendment that makes the objectives that are set for the economic policy happen”. For Belluzzo, the new minister “is very open to dialogue. He has nothing to do with being a self-sufficient person, who thinks he knows everything”.

Pessôa, from FGV, says that “Haddad is not a person forged in politics. He is an intellectual. Now, he already has enough political experience. He worked in the Ministry of Education, approved several laws. Later he was mayor of São Paulo and candidate for president . You already have the training”.

What is Haddad’s ‘school’?

The new head of the economic area has a view that does not fit perfectly with the traditional division between liberal schools (favorable to controlling and cutting government spending and providing more freedom for the market) and developmental schools (which defend a more active role for the state in economy, with more state investments).

“He’s not a classic developmentalist, but he’s not a liberal either,” says Inhasz.

“He is a developmentalist who understands how the market works, what the rules of the game are. Most likely he will not be a minister who thinks about economic policy because he is not a policy maker [que cria ou adota linhas econômicas mais bem definidas]🇧🇷

“I think he’s halfway there,” says Marconi.

“He has many ideas that are more liberal. He is concerned with development strategies, but at the same time he talks about more liberal strategies. It’s not very clear.”

For Belluzzo, Haddad “has a very social-democratic, progressive conception, which is that of someone who understands the relations developed throughout history between the State and the market”.

“All the experiences that were made with the attempt to suppress the market did not work out very well, like the economy of the Soviet command for example. Even the Chinese quickly understood this and transitioned to another way. I imagine that this is the vision of Haddad , which understands what are the connections, relationships and what is the dynamic that is implicit in that.”

This text was published here.