(Bloomberg) — Brazil’s incoming Finance Minister Fernando Haddad vowed to quickly present a plan to ensure the sustainability of public debt despite having no intention of cutting spending in the first year of government.
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Without giving details about the proposal that is expected to replace Brazil’s current fiscal anchor, Haddad said on Tuesday that President-elect Luiz Inacio Lula da Silva gave him the mission to balance government finances while also paying attention to the needs of the most vulnerable Brazilians.
“I want to balance public accounts without pushing the poor out of the budget,” he told journalists during his first news conference after being appointed to the job.
Haddad’s fiscal pledges have yet to convince investors who worry about Lula’s plans to pay for a series of campaign pledges. The proposal currently being debated in congress boosts a constitutionally mandated spending ceiling by 145 billion reais ($27 billion) for two years, allowing the government to keep paying cash handouts that had been promised to the poor, but not fully budgeted by outgoing President Jair Bolsonaro.
Investors fear the additional spending will put at risk government finances and fan inflation in Latin America’s largest economy. Lula’s decision to pick Haddad, a loyal member of the leftist Workers’ Party, did little to allay those concerns, as many investors expected the position to be handed to an economist more aligned with the centrist group of Vice President-elect Geraldo Alckmin.
Haddad said the country’s revenue for 2023 seems underestimated and is likely to be revised up by the new government. That will be one of the first tasks of his team, he said, adding that a proposal to replace the current spending cap rule, which limits the growth of public expenditures to the inflation rate, will be presented in time to be debated in the first half of 2023
Earlier on Tuesday, Haddad announced that economist Gabriel Galipolo, the former chief executive officer of Banco Fator SA, will be his deputy finance chief. Both men spent the day in meetings with members of Bolsonaro’s cabinet, including Economy Minister Paulo Guedes and Central Bank Chief Roberto Campos Neto.
What Bloomberg Economic Says
“Three new appointments to Brazil’s economic team shed more light on the incoming administration’s policy priorities. The choices bode well for an overhaul to consumption taxes, but raise the risk of a more interventionist credit policy. They don’t indicate what the next government might propose to replace the spending cap.”
—Adriana Dupita, Brazil economist
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Haddad and Campos Neto met hours after Brazil’s central bank warned that possible changes to fiscal rules may fuel inflation by diluting the impact of its aggressive cycle of interest rate increases. The bank’s message was included in the minutes of its latest policy meeting, when it kept the benchmark Selic unchanged at 13.75%.
Haddad described the meeting with Campos Neto as “candid” and said they have an obligation to seek convergence.
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He also tapped economist Bernard Appy as a special secretary to work on a long-promised overhaul of the country’s tax system. Such a reform needs to be discussed along with a new fiscal rule, he added.
The incoming minister also defended the democratization of credit, saying that large companies with access to capital markets don’t need to benefit from public credit. Yet Brazil needs public investment because capital markets are not always able to finance long-term projects, he said, expressing great enthusiasm for public-private partnerships.
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