Eurasia: Lula Gives ‘Mixed Signals’ but Brazil’s Economy Should Be Better Than Expected

For Christopher Garman, director for the Americas at the consultancy, Haddad must forward an agenda of tax collection and spending control beyond what the market prices

For Christopher Garman, from Eurasia, Lula gave priority to people he trusts in the ministries and faces difficulties in attracting credible names from the market
December 26, 2022 | 04:40 PM

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Bloomberg Línea — The management of the Brazilian economy by the next government of Luiz Inácio Lula da Silva should not be as negative as some financial market professionals predict. According to political scientist Christopher Garman, director for the Americas of the political risk consultancy Eurasia, the next Minister of Finance, Fernando Haddad, “will forward a better agenda than expected on the revenue side and also in terms of spending control”.

According to him, Eurasia predicts that “economic policy will end up being better than expected”.

“Of course that the economic team has a more Workers Party profile and the market reads the risk of a more expansionist fiscal policy, of uncontrolled public accounts. But we need to be careful not to jump to exaggerated conclusions,” Garman said in an interview with Bloomberg Línea.

For Garman, the ministry that Lula has presented so far can be explained along two axes:

  • The president-elect has been facing difficulties in finding credible names from the market, with some invitations turned down and;
  • Lula wants “highly trusted” people around him.

According to the political analyst, as the new government failed to attract names that would bring credibility to the team, “the expectations that a broad coalition would be formed were frustrated”.

One of the names being considered is that of economist André Lara Resende, one of the fathers of the Real Plan, who initially refused to take on the Ministry of Planning.

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This was also the case with businessman Josué Gomes da Silva, president of Fiesp (Federation of Industries of the State of São Paulo), chief executive of Coteminas, and son of José Alencar, who was Lula’s vice-president in his first two terms. He would have refused to take over the recreated Ministry of Development, Industry, and Trade, which ended up with vice-president Geraldo Alckmin (read more below).


It was expected that the Ministry of Education and Social Development, for example, would remain with allies, especially Senator Simone Tebet, who, after having been the third most-voted candidate in the first round of the presidential election, began to support Lula in the final straight.

But so far this has not happened - although there are still 17 ministers to be announced. Education was left to senator-elect Camilo Santana (PT-CE), and Social Development to senator Wellington Dias (PT-PI), whose term expires at the end of January.

‘Mixed signals from Lula’

“These are mixed signals,” Garman said. “By putting people he trusts in the ministry, Lula must see a difficult scenario ahead. But this creates uneasiness among allies. It’s a fine balance between making room for people he trusts and not opening it up to allies,” he said.

“On the economic policy side, it is a worrying sign. The new Finance Minister has put together a team of experienced people, but without any big name from the market with credibility - although it is too early to conclude that the Waiver PEC [better known as the Transition PEC] is a sign that economic policy is going to stay on a worrying trajectory for the debt,” said Garman.

On the strictly political side, according to the director of Eurasia, “everything gets more difficult”. “The government will pay a price for assembling a ministry that does not inspire confidence in the conduct of the economy. This translates into a higher yield curve, and the private sector becomes more uneasy.”

Tax collection is a priority

As quoted by the political analyst, Haddad is giving signs that he intends to prioritize tax collection ahead of the economy. On Monday (19), he announced that the Attorney General of the Treasury Anelize Lenzi Ruas de Almeida will be the Attorney General of the National Treasury (PFGN). The PGFN is responsible for the legal representation of the Union. It is the body that collects tax debts in the courts and administrative bodies.

Almeida has been at the PGFN since 2006 and has worked in the management of the Federal Active Debt, the department that monitors all federal tax debtors. The Active Debt stands at R$ 2.7 trillion, according to a fiscal risk report released in November by the Treasury Secretariat.


During Anelize Almeida’s term in charge of Active Debt management, mechanisms to negotiate and encourage tax payment were created, such as the Differentiated Rules for Credit Collection (RDCC), a set of rules to streamline the operations of the Treasury Attorney’s Office; the taxpayer compliance program, which rewards prompt payment of taxes; and the debt rating, which classifies tax credits according to the possibility of payment by the debtor.

The Treasury’s fiscal risk report pointed out that the stock of judicial lawsuits against the Federal Government grew 39% from last year to now, with a total of R$ 2.9 trillion under discussion. Of this total, R$ 528 billion are considered a “probable risk” of defeat for the Federal Government, and the rest, is “possible” defeat.

Haddad says he will give priority to the Treasury's legal action to reduce the fiscal risk of court decisions, with an eye on revenuedfd

At the press conference in which he announced the new PGFN, Haddad said he wants to “structure a group to monitor fiscal risk in Brazil” to “compose a team that will act more firmly with the courts to reduce the financial risk of judicial decisions.

“Few people give due importance to the need for a very fine acting of PGFN in the defense of the National Treasury,” Haddad said. “PGFN and Receita Federal will be two very important bodies for restructuring our fiscal agenda. We will have clearer laws, fight tax evasion, recover tax credits, and exemplary performance in the courts,” he added.


Haddad announced the names of his trust for the areas related to tax collection. The Revenue Secretary will be the lawyer Robinson Barreirinhas, who worked with Haddad when he was Finance Secretary of the Municipality of São Paulo, in the administration of Marta Suplicy (at the time in the PT, today in Solidarity).

Alckmin: dialogue with industry

Another name that attracted attention in the economic management of the new Lula government was that of vice-president Geraldo Alckmin (PSB). On Thursday (22), the president-elect announced that his vice-president would hold the post of Minister of Development, Industry and Foreign Trade (MDIC, which will be recreated).

At MDIC, Alckmin will be the bridge between Lula and São Paulo industrialistsdfd

There was some surprise since both Lula and Alckmin had declared that the vice-president should not occupy ministries, but should be an ally of the president in the management of the country. But the announcement came after businessmen from the industry refused the invitation to head the portfolio, such as Josué Gomes da Silva.


A source linked to Lula and close to Workers’ Party leaders told Bloomberg Línea that Alckmin was a way out to give Lula tranquility in the relationship with the industry. It is a sector that supported Bolsonaro throughout his government and is concentrated in São Paulo, a state that Alckmin governed for 13 years.

According to Christopher Garman, Eurasia “looks favorably on” the appointment. “Alckmin and Haddad have a good relationship and should make a good pairing in the government,” analyzed the political scientist.

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