Half of Brazilians rate the economy as "very bad", according to Silvia Matos, coordinator of the Macro IBRE Bulletin at the Getulio Vargas Foundation (FGV), one of Brazil's leading economic research institutes. It is as if, out of every two shoppers in a supermarket line, one walked away unhappy with the cost of the cart. For the economist, that frustration with the cost of living is the main message voters sent President Luiz Inacio Lula da Silva, reelected on Sunday (25) to a fourth term.
In an interview with InfoMoney, Matos summed up the prescription in one sentence: "The goal of Lula 4 is to be Lula 1. There is no need to invent anything". She was referring to Lula's first term, from 2003 to 2006, when the commitment to fiscal responsibility began during the transition, before he even took office. "It became clear that the PT victory is not a victory endorsing the PT's economic policy", she said.
The problem, in her assessment, is the size of the inherited imbalance. The public budget is locked up by mandatory spending, debt is high and Congress practices a fiscal populism that unites left and right in the fight for slices of the budget.
"We need a bridge to the future. And what do we have today? We do not have that bridge to the future, we only have a fiscal bomb that is going off", Silvia Matos said.
Explainer: a primary surplus is when the government collects more than it spends, before counting interest payments on the debt. It works like a family that manages to save part of its salary before paying the credit card bill. Matos defends strict rules that guarantee consistent primary surpluses over time.
High interest rates and a spending review
In practice, careless public accounts show up in consumers' lives as high interest rates. With inflation rising and the exchange rate under pressure, the Central Bank has little room to cut the Selic, Brazil's benchmark interest rate, which ends up built into store installment plans and car payments. For the economist, an international backdrop of high interest rates and conflicts that make raw materials more expensive raises the urgency for Brazil to put its own house in order.
For Matos, the adjustment should not be blind: the priority is to review the quality of spending. She criticizes tax breaks granted to sectors that do not need public support and called "unacceptable" the attempt to revive Perse, an emergency program for the events industry created during the pandemic, when resources are lacking for health and education. "Brazil decided to have a welfare state for everyone before it had the money", she said.
The credibility of the new government, according to her, depends on the choice of the economic team. The market expects a Finance Minister with a reformist profile and real autonomy, in the mold of Antonio Palocci and Henrique Meirelles, who ran economic policy in the earlier Lula administrations. "You do not make a revolution, a minister cannot be a revolutionary. He has to be a reformist", she said.
Lula himself rejects the fiscal bomb thesis. In an October 19 interview with SBT News, the president said that "everything being approved is within the fiscal possibilities of the budget". According to Poder360, he stated that the government inherited a deficit of 2.8% of GDP (the total value of everything the country produces in a year) and should end the current cycle with a primary surplus of 0.1%.