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President Luiz Inacio Lula da Silva’s first 100 days do not auger well for local and foreign investors in Brazil the next four years, Latinvex says in an editorial. (Photo: Twitter/LulaOficial)
Thursday, March 30, 2023

Brazil: Lula’s First 100 Days

Brazil’s president turned out to be more radical than expected.


As Luiz Inacio Lula da Silva marks the first 100 days of his third term as Brazil president, investors have little to cheer about.

Instead of the pragmatic leader from his first two periods as president (2003 to 2010) when he had a relatively good relationship with business, Lula 3 has turned out to be more like the presidency of his close ally Dilma Rousseff (2011-16), who led a dismal government with dismal results. While Lula’s two first terms saw an average growth rate of 4.1 percent, Rousseff’s saw an average of 0.4%, according to a Latinvex analysis of data from the International Monetary Fund.

When Lula ran against incumbent president Jair Bolsonaro in last year’s presidential elections, investors took comfort that the leftist had named Geraldo Alckmin as his running mate. Alckmin was a well-respected former governor of Sao Paulo state who had run against Lula in the 2006 elections.  However, Alckmin seems to have been sidelined in the new Lula administration.

Meanwhile, Lula’s pick for finance minister – Fernando Haddad – is seen as a weak loyalist rather than a counterweight.

Lula had garnered support before the election from such market pillars as former finance minister and Central Bank president Henrique Meirelles,  former Central Bank President Armínio Fraga, former finance minister Pedro Malan and former Brazilian Development Bank President Edmar Bacha, but they have all soured on him after his irresponsible statements and policies.

A longtime radical union leader, Lula had surprised markets when he assumed office the first time when he named Meirelles – a well-respected banker – as central bank president and subsequently gave him a de facto autonomy.

These days, though, Lula seems to thrive on attacking the current central bank president Roberto Campos Neto for doing his anti-inflation job and questioning the bank’s formal autonomy (granted in 2021). The constant attacks have increased market nervousness about Lula’s economic policies.

Economists had already begun to steadily increase inflation forecasts to account for Lula’s plans of more social spending, but the mood soured completely after the president questioned the need for an independent central bank in a January 18 TV interview, also suggesting consumer prices should be allowed to rise at a faster pace not to impede economic growth, Bloomberg reported.

Now, many traders don’t anticipate a rate cut before the fourth quarter and some even predict no rate cut this year.

Instead of the responsible policies of his first two administrations, Lula is sending all the wrong signals about inflation and government spending while issuing anti-market statements that are hurting more than helping Brazil’s economy.

“The dollar doesn't rise and the stock exchange doesn't fall because of serious people, but rather because of speculators," Lula said in November after the real and shares fell on signals about his plans to raise expenditures and ignore the spending cap.

As finance minister during the government of President Michel Temer, Meirelles came up with a brilliant idea to garner confidence from the market – a government spending cap. The 20-year public spending ceiling was approved by Congress in 2016 and was a key factor in turning investor sentiment about Brazil after the pessimism during Rousseff.

However, Lula railed against it and got Congress to approve a constitutional amendment that raised the spending cap by at least 145 billion reais (US$28 billion).

“Unlike what Lula said, the spending cap is not stupidity,” former finance minister Maílson da Nóbrega told Valor Economico.Stupidity is saying that the spending cap is stupid."


During the Lula and Rousseff governments, the state oil company Petrobras was used for an unprecedented corruption scheme, while it also dramatically boosted its debt and followed non-market policies.

“The financial losses to Petrobras were huge,” The World Bank pointed out in a report. 

Petrobras itself estimated in its 2015 financial report that $2.1 billion had been paid in bribes. In addition, it proposed almost $17 billion in write-downs due to fraud and overvalued assets (including wasted investments, which nevertheless produced resources for political financing) which the company characterized as a “conservative” estimate. Due in part to the impact of the scandal, as well as to its highdebt burden and the low price of oil, Petrobras was also forced to cut capital investments andannounced it would sell $13.7 billion in assets over the following two years. By mid-2018, the corruption scandal was believed to have erased more than $250 billion from Petrobras’s market value. The oil giant has also lost billions more in legal settlements and other costs related to graft, including a $853 million settlement with the U.S. Department of Justice, the Securities and Exchange Commission, and Brazilian authorities.

“The company had essentially been used as a slush fund by all politicians and officials to enrich themselves and to finance their political campaigns and gain influence at home and abroad,” The World Bank says.

After the corruption scheme was revealed, the Temer government in 2016 passed the  “State-Owned Companies Law” which established governance and transparency mechanisms for state-owned companies, such as rules for the disclosure of information, risk management practices, codes of conduct, oversight by the State and by society, and minimum requirements for the appointment of management. 

The goal was to avoid Petrobras and other state companies being abused by unqualified political appointees.

“Since assuming office in January 2023, Lula has provoked concern by amending the Brazilian State-Owned Companies Act which had prohibited serving politicians or political appointees from directing state-owned companies,” law firm Cadwalader wrote in a recent overview of the historic Car Wash (Lava Jato) corruption probes. “In the wake of this reform, Lula has nominated political appointees to lead Petrobras and the Brazilian development bank, BNDES.”

Lula named Senator Jean Paul Prates of his Workers Party to lead Petrobras, while left-wing economist Aloízio Mercadante was named to head BNDES.

There is now widespread fear Petrobras will revert to its old ways of investing based on political rather than market considerations, wasting the significant progress made under CEO Pedro Parente (Latinvex CEO of the Year in 2017).

Not only is the Lula government stopping Petrobras’ divestment strategy but it even wants to rescind signed contracts – further weakening credibility in Brazil and Petrobras. Brazil's Mines and Energy Ministry this week requested Petrobras  to reassess a conclusion of the company's former management that there was no reason to suspend already signed sales, Reuters reports.


Key corruption experts are warning against the danger of increased corruption in Brazil under Lula.

“The fact that Lula da Silva, someone who was so centrally implicated in Lava Jato, is President once again could signal more corruption risk for companies doing business in the country going forward,” Matteson Ellis, Member of Miller & Chevalier and author of The FCPA in Latin America, told Latinvex recently.

Juan Morillo, Co-Chair of the White Collar and Corporate Investigations Practice at Quinn Emanuel, agrees.

“Lula’s previous incarceration for bribery and money laundering calls into doubt his willingness to follow through on anti-corruption measures,” he says.


As if things couldn’t worse, Lula this month decided to announce a surprise 9.2% oil export tax.

Five European oil majors hit back warning of the impact on investments, Bloomberg reports.The four-month tax was announced without significant consultation with the industry, brings uncertainty to future investments and makes Brazil’s oil industry less competitive, Shell said in an emailed statement. There needs to be “absolute respect” for contracts to have long-term and robust investments in the country, Equinor said in a statement. 

Lula is also raising eyebrows these days by his radical rhetoric.  The Brazilian president even managed to bring class warfare into his diagnosis of the violent January 6 attack against the Presidential Palace, Congress and Supreme Court that he blamed on “a revolt of the rich who lost the elections."

In fact, the attacks specifically came from poor and rich supporters of Bolsonaro – the authoritarian far-right leader who had frequently been criticized by investors during his four-year term. The action by thousands of rioters was considered the worst attack on Brazil's state institutions since its return to democracy in the 1980s, Reuters reported.

The violent attacks were quickly and strongly condemned by the Sao Paulo industry association FIESP (the largest business group in Brazil), FEBRABAN (the Brazilian bankers' association), the national industry confederation (CNI), the industry association of Rio de Janeiro (Firjan), the Brazilian Association of Financial and Capital Market Entities (Anbima) and the Association of Bars and Restaurants (Abrasel), Folhapress reported.

In other words, the Bolsonarista attacks were not a rich vs poor issue but rather an attack against democracy. 

The only solace for now is that Lula lacks a clear majority in Congress and needs the support of centrist parties for many of his reforms.

All in all, Lula’s first 100 days do not auger well for local and foreign investors in Brazil the next four years.

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