Lula Faces R$298 Billion Spending Reckoning as Brazil Real Sinks 8%
Updated
Updated · Financial Times · Oct 27
Lula Faces R$298 Billion Spending Reckoning as Brazil Real Sinks 8%
3 articles · Updated · Financial Times · Oct 27
Summary
Brazil’s post-election sell-off has intensified pressure on President Luiz Inácio Lula da Silva to unveil budget cuts after the real suffered its worst day since 1999 and the Bovespa dropped 13.9%.
R$298 billion in campaign promises — including debt relief and higher welfare benefits — deepened investor fears over financing, adding to concern about a fiscal deficit already running at 9.5% of GDP.
JPMorgan and other investors say tax collection and one-off measures will not be enough because mandatory spending such as pensions and wages absorbs about nine-tenths of the budget.
Debt at 83% of GDP and a 13.75% policy rate have sharpened demands for a quantified, expenditure-led adjustment, with markets also watching Lula’s finance minister choice and Congress’s willingness to back reforms.
Rightwing gains in Congress may restrain Lula’s spending agenda, but analysts still expect only a modest first package that may fall short of restoring confidence.