Intervening state is the main reservation of economists to Lula’s speech

The inaugural speeches of President Luiz Inácio Lula da Silva (PT) this Sunday (1st) were received with reservations by financial market analysts, who are concerned with the expectation of a government that is very intervening in the economy.

In speeches in Congress and in the presidential palace, the PT defended the role of the State as a driver of growth, called the spending ceiling stupidity and spoke of a new labor law.

In general, the balance is that the speech did not bring much news in relation to the economic agenda historically aligned with the party and the campaign promises. However, uncertainty about how the government will carry out the intended changes is viewed with apprehension.

For Sergio Vale, chief economist at the consultancy MB Associados, Lula’s first speech as president is positive, but leaves some doubts about how practical action will be.

“Obviously, we couldn’t expect anything very specific from the president at this moment. It’s not the place and it’s not the focus, but it leaves a cucumber for the [Fernando] Haddad deal,” he says.

One of the points to be faced by the Minister of Finance that causes concern, in his view, is the configuration of a new spending cap rule.

“It’s up to Haddad to deliver something credible in the coming weeks”, he says. “I hope that when the president talks about stupidity, it’s about this rule that we have now, not about any spending rule.”

Another point that scares, in his view, is the revision of the labor law, since there is no clarity about the items that Lula intends to change.

“Apart from these economic issues, the discourse is positive, compared to what we have seen in the last four years. Returning to democratic normality in the country is important for the horizon of investment and growth. Lula brings back democratic stability, which we need to have it is also macroeconomic stability”, he says.

Rafael Pacheco, economist at Guide Investimentos, sees the opposite. For him, the speech tends more to the negative side. “Lula reinforced a lot the point of the more intervening State to turn the wheel of the economy”, he says.

In the economist’s view, Lula was guided by the issue of hunger when justifying the importance of the State in the economy, as well as the boosted Bolsa Família and the financing of consumption by the poor population.

“We can say that Lula is pointing to the economic foundations of his governments [anteriores]”, he states.

Pacheco makes reservations about Lula’s promise to reactivate public banks and the BNDES (National Bank for Economic and Social Development) as growth-inducing companies. Furthermore, emphasizing popular consumption as one of the engines of the economy is not necessarily a rule that always works, he says.

“That depends on the moment. We know that the current moment is not the same as that time [governos anteriores do Lula]. External financial conditions are not so good, commodities are falling and unemployment, although high, is below the equilibrium level.”

Regarding the criticism of the spending cap, Pacheco said he had not seen much news. What worries, however, is the vigor with which the criticism was made, as well as the possible changes in the labor law. “If it is a very big change, it can generate more inflation and more interest”, he argues.

Camila Abdelmalack, chief economist at Veedha Investimentos, considers that excerpts from Lula’s speech may add more volatility to a beginning of the year that would already reserve concerns due to some expected discussions, such as the tax reform and, mainly, about a rule that could replace the spending cap.

“We will experience moments of uncertainty until we understand what the new instrument will be. This puts a premium on the interest curve, ends up devaluing the stock market and generating pressure on the exchange rate”, he says.

Abdelmalack claims that the resumption of an industrialization policy and Lula’s mention of the participation of public companies may also increase fears among investors regarding the political use of state-owned companies, in particular, regarding public banks.

“This is an aspect that worries a lot because of the lack of control that occurred in previous PT governments.”

“There is also what concerns Petrobras. Lula claims that the state-owned company will play an important role in this new cycle and the concern that this generates is not only about the company’s pricing policy, but also about the repetition of past extravagances”, comments the economist. “We will have a lot of volatility in the market at the beginning of 2023 until we understand what is fact and what is rumor.”

Nicola Tingas, economic consultant for Acrefi (National Association of Credit, Financing and Investment Institutions), says that the objectives set out in Lula’s speech need to be “better delineated and better presented”. For him, the idea is again that of the State as an inducer of growth in order to generate employment.

“It has a logic of serving mainly a large mass of unemployed, hungry, people who are isolated in the economy after ten years of a very bad economic period, which increased inequality. From the point of view of economic and social choice it makes perfect sense. The question is how to do it”, says Tingas.

The consultant believes that, alone, the State “does not have enough sources to pay for this, on the contrary”. “After all the pandemic expenses and in 2022 we have a precarious fiscal situation and we need to show how the Union Budget will be compatible in the future with the need to spend within a reasonable rule in order to maintain sustainability of public debt in the medium and long term?”

About Lula’s statement that the spending ceiling is stupidity, Tingas says that “trying to create a blunt reading against the ceiling is not the answer”. “If the ceiling has problems, add another rule. The management of the public budget on the revenue side is paramount. Evidently, the tax reform is tied to that”, points out the consultant from Acrefi.

Sérgio Leitão, founder and executive director of Instituto Escolhas, considers Lula’s inauguration speech as an extremely important pronouncement, which brings back a scenario of democratic normality.

“What remains for us to verify is how the points announced today will be balanced in an effective government action”, he says.

He mentions, for example, the promise to eliminate deforestation and greenhouse gas emissions in the electricity matrix, which will require good dialogue with agribusiness and Congress.

Regarding the criticisms that the PT member made to the spending ceiling, Leitão considers that the speech is consistent with what was discussed during the campaign, which includes the need to resolve urgent socioeconomic issues. “I compare what was said in the speech with what the Minister of Finance has been saying, that we are going to be responsible for the Budget.”

Leitão still makes reservations about the great incentives for consumption. “In Lula’s 1st and 2nd administrations, we drew attention to the fact that people’s lives improved from the door in, but not necessarily from the door out”, he says. “Just encouraging consumption is no longer related to the set of needs facing the country”, he adds.

Carla Argenta, chief economist at CM Capital, highlighted Brazilian diplomacy and the situation of vulnerable people as two major themes in the new president’s speech. “The focus of Lula’s speech was not on the economic part.”

The economist sees as “extremely relevant” Lula mentioning that Brazil needs to return to bilateral and multilateral partnerships and have an active and leading policy.

“This is considered fundamental by investors when defining resource allocation and partnerships. [O discurso] It shows a change in Brazil’s relationship with other countries in the world”, he says.

“In a much more emphatic way, he spoke of the situation of the population that makes up the base of the social pyramid. It was very clear that if there is any legal or political obstacle to the implementation of social policies, untying this knot will be sought to exhaustion by the new government. If there was any doubt about that, it’s gone with today’s speech.”

Piter Carvalho, chairman of Valor Investimentos, says that Lula reinforced the developmental thesis in his speech.

“The market does not see this economic model with good eyes and that is why it increases its distrust, mainly in relation to state-owned companies, I highlight Petrobras and Banco do Brasil”, he says.

He claims that the market fears interference for prices and hopes that dividends will not be so high, although he sees potential for Petrobras in a scenario of lower oil supply in the coming years.

“Banco do Brasil also has enormous potential, mainly in the agro sector, but it should be an arm of the new government’s public policies. Oak.