Luiz Inacio Lula da Silva retook the helm of Latin America’s largest democracy promising to bring back the economic inclusion and prosperity that marked his first two terms in Brazil’s highest office between 2003 and 2011.
It won’t be easy: Brazil grew more politically polarized over the past two decades, with trust in his Workers’ Party eroded by corruption scandals. The world also became a tougher place for emerging-market countries, and particularly those with unresolved fiscal issues.
The leftist leader’s inauguration started Sunday in Brasilia with a parade through the esplanade of ministries and a first stop at the National Congress. There, the 77-year-old politician was sworn in and delivered his first speech as president, saying he was signing measures that would allow state-owned companies to resume their role in boosting economic development.
“Public banks, particularly the BNDES, as well as companies that lead growth and innovation such as Petrobras will have a key role in this new cycle,” Lula said. “The wheel of economy will spin again and popular consumption will have a central role in that process.”
Lula’s second stop will be at Planalto Palace, his official working address, where a traditional power handover ceremony was expected to take place with the outgoing president handing the green-and-yellow sash to the next elected leader. But given that Jair Bolsonaro ditched the inauguration to travel to the US, it’s still unclear how the sash will be passed to Lula. A second speech is expected there, this time to the broader population.
Security has been reinforced in Brasilia after some supporters of the conservative leader were involved in violent protests against Lula’s razor-thin victory on Oct. 30. In a more worrisome development, police last month derailed a plan by a man identified as a Bolsonaro backer who intended to blow up a fuel tank trucker near Brasilia’s international airport. The explosion was only one of other terror tactics planned by a group of people who sought to spread chaos, which they believed would force the military to intervene, stopping Lula from taking office.
Pacifying a country politically divided, as well as improving relations with the military, congress and the top court, will be one of Lula’s most pressing tasks — one he has started already started working on by appointing key cabinet members who were given the mission to improve dialog with other institutions of government.
Changed World
His other challenge, possibly the most difficult, is to deliver on several campaign promises that require more social spending and investment at a time Brazil’s public finances are more fragile, inflation remains above target, and interest rates high. A possible global recession would only add to Brazil’s woes as major central banks continue tightening monetary policy across the globe.
“Lula’s challenge will be to start the process of re-balancing public accounts — whether by raising revenue or cutting expenses — that will enable economic growth and make it possible to expand its social base after such conflicted elections,” said Júnia Gama, senior political analyst at XP Inc.
He gave that job to Fernando Haddad, a left-leaning economist who, as finance minister, has yet to come up with a credible fiscal framework that would at the same time allow Lula to boost spending immediately while ensuring debt sustainability in the longer term. One of his first tests will be to approve a replacement for the country’s spending cap, Brazil’s main fiscal anchor which by now has lost almost all of its credibility with investors, while also moving forward with an overhaul of Brazil’s complex tax system.
“The first few months will be essential for us to see the government’s willingness to face unpopular agendas that are necessary for the country to sustainably grow,” said Gama.
But Lula has also changed. After being jailed for 580 days on corruption charges that were later tossed out by the Supreme Court, the former union leader returned with a proposal to join forces with estranged leftist parties and leaders, as well as centrist politicians to create a large and plural coalition able to defeat Bolsonaro in the election.
While the coalition served its purpose, the jury is still out on whether the Workers’ Party will indeed share power with other groups, particularly during more crucial government decisions.
The political alliance that goes beyond the left-wing ideology of Lula’s Workers’ Party may give him some political stability, says Flavia Biroli, a political scientist with University of Brasilia.
“We won’t be a country like Peru where for years it has not been possible to form a coalition that allows political stability,” she said.
Such alliances will be particularly important to deal with more radical supporters of Bolsonaro who won seats in congress.
“We have an active and mobilized extreme-right, which tends to be a present element in the next elections,” said Flavia Biroli. “This won’t go away even if Bolsonaro ceases to play a leading role in Brazilian politics.”
