Haddad takes office and promises new fiscal rule this semester

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Lawyer and economist Fernando Haddad (PT) took over the Ministry of Finance this Monday (2) reaffirming the commitment to send to the National Congress a proposal for a new fiscal framework in the first half of the year, replacing the spending ceiling.

In his first speech after being sworn into office, Haddad sought to convey a message of responsibility with public accounts, combating inflation and social priority.

“In addition to working with full emphasis on the recovery of public accounts, it is necessary to fight inflation. It is necessary to make Brazil grow again with sustainability and responsibility. But, above all, with social priority. With job creation, opportunity, income, wages worthy, food on the table and fairer prices,” he said.

The speech of the new Minister of Finance was marked by a series of improvisations. When promising the new fiscal anchor, he was applauded by the audience, made up of civil servants, businessmen and representatives of state governments.

Although the discourse that social responsibility and debt control has been highlighted by the new government since Haddad was appointed to the Treasury, investors and economists have been concerned about manifestations that point to an increase in public spending and state intervention in the economy.

This Monday, the first day of the third term of Luiz Inácio Lula da Silva (PT), the dollar opened with a strong rise, which reached over 1% at 9:15 am.

In his speech, Haddad sent messages to the financial market. “A strong State is not a big State, an obese State. It is an active State”, he affirmed. “We are not dogmatic, we are pragmatic, we want results, but we follow principles and values”, he said. He even made nods to the Central Bank and parliamentarians, saying that “a lot of good things are stuck somewhere”.

Under pressure to deliver an improvement in public accounts, Haddad criticized the economic legacy left by the government of Jair Bolsonaro (PL). “The expression ‘putting the house in order’ has become a common metaphor in the speeches of those who start a new government, a new administration. But I dare say, without fear of committing exaggerations, we are closer to the need to rebuild a house than simply fix it,” he said.

The new minister classified the measures of the previous administration as “the hardest blows” against the population and stressed that, many times, the acts “contradicted common sense and the recommendation of economics technicians”.

He cited as examples the undue inclusion of families in the income transfer program and the distribution of “benefits and tax exemptions” to companies. “We are therefore talking about a shortfall of around R$300 billion, caused by insanity,” he said.

Haddad also said he was “comfortable” to be in an economic team with vice president Geraldo Alckmin (also head of the Ministry of Development, Industry, Commerce and Services), Simone Tebet (Planning and Budget) and Esther Dweck (Management and Innovation of Services public). He also defended the division of the Ministry of Economy into new folders.

Without naming names, Haddad recalled how Bolsonaro referred to Minister Paulo Guedes —who was called by the then representative “post Ipiranga” (a way of saying that all doubts about the economy would be resolved by him, in an allusion to a commercial for the brand). .

“We were the Ipiranga service station, now we are a network of service stations. Four that will make a difference in Brazil”, he said, referring to the four ministries in the economic area. “It’s too bad to have all your eggs in one basket, we want to act collegially.”

In an attempt to convey a message of commitment to fiscal austerity, Haddad promised to reduce the shortfall contracted for this year, after the approval of a PEC (proposed amendment to the Constitution) to authorize increased spending.

“We will not accept a primary result that is not better than the absurd BRL 220 billion deficit forecast in the Budget for 2023”, he said.

The minister highlighted the fact that the government managed to approve a PEC in Congress even before taking office. “This is a demonstration that we want to dialogue with Congress, with an open spirit, humility, without arrogance, without wanting to own the truth”, he said.

Haddad signaled willingness to dialogue, including with members of the opposition. “We cannot fear politics, fear dialogue and, in a prejudiced way, brand people who did not walk with us as opponents”, he said. He also stated that the economic team will present, in the first weeks of the government, “necessary measures to restore confidence”.

Haddad starts work with the main members of his team defined to fulfill the mission given by President Luiz Inácio Lula da Silva (PT) to promote income distribution and reduce the abyss that separates rich and poor.

For the most important positions —the so-called hard core of the portfolio— Haddad chose PT economist Guilherme Mello (Secretary of Economic Policy), Rogério Ceron (Secretary of the National Treasury), Robinson Barreirinhas (Secretary of Federal Revenue), and Marcos Barbosa Pinto (Secretary of Economic Reforms).

Haddad has already worked with Barreirinhas and Ceron when he was mayor of São Paulo (2013-2016) and with Barbosa Pinto, at the Ministry of Planning during Lula’s first term.

Economists from large banks and brokerages interviewed by Sheet Privately, they believe that those chosen point to a more weighty state management in running the economy.

They expected names that could demonstrate a commitment to cutting costs, but Haddad preferred to have trusted advisors.

Haddad’s right-hand man in the ministry will be Gabriel Galípolo. He will assume the executive secretariat, coordinating the entire team and replacing the minister when he needs to be absent.

Recently, Galípolo made public statements defending the performance of public banks, something that caused strangeness in the financial market, from which he left. Galípolo was president of Banco Fator until 2021 and became closer to Haddad during the campaign.

Haddad named other team members. One of them is Bernard Appy, who will work on tax reform, one of the portfolio’s priorities. He is one of the authors of the bill on the subject that he discussed in Congress around which, according to party leaders, there is consensus.

Farm attorney Fernanda Santiago will take care of legal affairs for the portfolio and Tatiana Rosito, from the international area.

The columnist of Sheet Mathias Alencastro will also be a special advisor.

For attorney general of the National Treasury, Haddad chose Anelize Lenzi de Almeida.

A businessman very close to Lula privately stated that the president wants to have the best mandate in history and defined the economy as one of the pillars.

To that end, he delegated to Haddad the task of implementing reforms —especially the tax one—, encouraging concessions, and enacting measures that promote income distribution and encourage what Lula called “popular consumption.”

For economists from large banks, this challenge will be enormous because there is no fiscal space for expenditure or subsidies in the economy —which boosted the Lula 1 and Lula 2 governments, which were very marked by the rise of the C class as the driving force of GDP.

Without generating new revenue —raising the tax burden or giving up tax revenue through exemptions or reductions in rates— it will be practically impossible to stimulate a consumerist wave due to low incomes.

The idea, according to advisers, is to try to make a credit policy viable through funds with guarantees guaranteed by resources from the Treasury or the FGTS. Through this mechanism, the borrower would pay a fee that would feed back this financial cycle.

This policy could favor small businesses and entrepreneurs, the largest employers in the country.

Signaling to the market

According to reports, despite being aware of market expectations, the president considers that there is no opposition between pleasing investors, bankers and businessmen and, at the same time, promoting social justice.

Lula wants Haddad to lead this plan so that he can be his successor in 2026. One of the main tasks at the beginning of his term will be to define the new fiscal anchor — an instrument that will provide the guidelines for reducing the debt in the coming years.

A banker heard on condition of anonymity considers that this measure will seal Haddad’s fate with the market. If it shows a lack of commitment to debt reduction, the initial sympathy with the government ends.

They say that, at least in the first two years, it is possible for the economy to tolerate more social spending, as long as the economic team defines how it intends to reduce this debt in the future, in a sustainable way.

Bankers and businessmen heard say they would like less spending because, the greater the public debt, the more money the government needs to borrow in the market – which reduces the amount of money available for credit, mainly by companies to finance production.

For Isaac Sidney, president of Febraban, the federation of banks, the minister’s challenge will be to reconcile the very different views of the members of the economic team.

In a note, he said he hoped “that the new team will act rationally to build solutions for the serious economic and social problems that the country is experiencing.”

“To this end, I stress the importance of the country pursuing, without hesitation, the balance of public accounts, a premise for social development”, he said.

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