Bloomberg — Brazil’s budget head vowed to counterbalance leftist proposals in the new government with her moderate views, as investors grow increasingly wary about the direction of Latin America’s largest economy.
Planning and Budget Minister Simone Tebet said in an interview that she has a more centrist approach than many of the ideas backed by the new economic team, including the need to cut Brazil’s fiscal deficit. In practice, she will work so that the government does “its homework” to allow the central bank to lower interest rates, while also fully respecting its autonomy.
At the same time, leftist President Luiz Inacio Lula da Silva’s government still has a long way to go to win investors’ trust on fiscal policy, according to the former senator.
“President Lula chose me to be a point of balance within the team,” said Tebet, 52. “I have a different view than the developmental line of thinking within the federal government.”
Tebet is a rising star in Brazilian politics who finished third in last year’s presidential election. A seasoned lawmaker who teamed up with Lula in the runoff, she is seeking to represent moderates who backed leftist leader trusting that he will fulfill promises to form a broad coalition. The new minister has challenges ahead, especially after the president raised eyebrows by criticizing economic pillars including the central bank and the inflation target.
Speaking at an event in Brasilia on Thursday, Lula questioned the motives for investors’ distrust of his government. In a televised interview the night prior, he said it was “silly” to think that “an independent central bank governor is going to do more than when the president appointed him.”
Those remarks amplified financial market fears that greater spending under Lula would undermine years of work to strengthen public balance sheets. Additionally, investors are worried that increased expenditures would pressure consumer prices and consequently delay borrowing cost cuts.
Not Enough
By contrast, the former senator, who hails from a center-right party, strikes a more moderate tone on key economic policies. For instance, government intentions to cut the budget deficit are a good sign, but far from enough.
Last week, Finance Minister Fernando Haddad introduced plans to reduce Brazil’s budget gap from 2% to something between 0.5% and 1% of gross domestic product this year. The strategy relies mostly on boosting income by ending tax breaks and renegotiating debts, instead of delivering spending cuts.
“With a 2% deficit there is no lasting growth and interest rates will not fall,” Tebet said. “The fiscal program for 2023 is a small initial contribution, but it’s a sign.”
As Lula promises to increase social spending and public investment to boost economic growth, he is also aware that the government needs to be fiscally responsible and reduce debt, Tebet said.
Central bank President Roberto Campos Neto has also called for a “credible” and “sustainable” debt path in a recent letter explaining why annual inflation breached the top of its tolerance range for the second year in a row. He warned that a reversal of the labor reform and an increase of subsidized public credit could “reduce the power” of their most recent tightening cycle.
“President Lula’s government program has to fit within the budget over the next four years,” Tebet said. “He knows that, if that doesn’t happen, he would be committing electoral fraud. He will not do that.”
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