Photo: Ricardo Stackert/Flickr/Lula
This Saturday (6), the Supreme Electoral Court (TSE) formally registered the candidacy of former President Luiz Inacio Lula da Silva, who is counting on former Sao Paulo Governor Geraldo Alcmin (photo) as Vice President. The plan of the slate government was also recorded, which was highlighted today, as if it is news..
However, it is literally the same document as it was called “Guidelines for Brazil’s Reconstruction and Transformation Program”, which we cover in detail in this article. In other words, there is nothing new. today’s articles are just a topic already covered being reheated.
However, at the time of the document’s first publication, most of the economic press did not seem to pay much attention to the content; Perhaps because of the proximity to the pre-election event, the scrutiny now becomes greater.
In the middle of the road, there are even some more controversial issues going on in Armenia “Government Program” In interviews, the candidate himself has already denied, for example, the intention to cancel the labor reforms of Michel Temer.
But what surprises me is this Over the last 30 days, the market seems to have adopted the view that the outcome of the elections is not of much importance.it seems that the candidates had more similarities than differences.
This has proven to be true for some specific issues, and this approach comes from both sides. In another example, Lula said he intended to keep current central bank president Roberto Campos Neto.
On the other hand, Jair Bolsonaro did at Petrobras what some feared the PT would do: began to interfere in the management of the company. Not to the same degree, but something has changed. And the use of welfare programs and emergency declarations for electoral purposes and to circumvent the spending ceiling almost pushes the former president’s promise. In fact, there are several similarities.
So, let’s go to the differences. Since we are an analytical house, we highlight those that have the most direct impact on our investments.
Lula’s government, on the macroeconomic side, seeks low interest rates and tolerates higher inflation. The traditional way to help and reinforce this is through greater interventionism in exchange rate policy, forcing the exchange rate lower. Since all these attitudes are currently attributed to our independent Central Bank, they will be as per the requirement of the National Currency Board.
However, the agency provides guidelines and does not detail how the process should be carried out. In this sense, we can imagine some conflict between Finance (or Economics) and the current BC board.
In the fiscal realm, I believe the government will not commit to target or objective levels as it is today, even with market demands and the lack of flexibility indicated by the low risk premium on future yield curves. He’ll say he’ll do what he has to do, and that’s it.
State companies will undoubtedly stop any kind of reduction in Petrobras, which will also be used to moderate inflation, which, depending on the level of international oil prices, can have more or less harmful consequences. the company.
In addition, they should use it to make investments. Will they build an oil refinery? It seems difficult to stick to the ESG agenda, but I don’t suspect anything huge on this front that would leave the company in debt and, again, more fragile.
As for the banks, Banco do Brasil, Caixa Econômica Federal and BNDES, they will be used for credit expansion, which will put pressure on inflation. This heats up the retail market in the short term, but always has negative long-term consequences.
And finally, from a political perspective, I do not believe that gaining broad congressional support is as unlikely as it once was, nor will Lula’s popularity and approval be guaranteed.
Unlike the previous tax budget, the legislator had much greater powers. So there is much less dependency “pen” for presidential approval of the projects, something Lula has already made clear he will try to reverse. This struggle will not be easy and will show a very different scenario from the past, where the executive and the legislature lived together almost symbiotically.
One consequence of this is that Lula may not be able to fulfill some campaign promises that would directly affect his popularity, a process that we see in Chile and Colombia after the election of two left-wing candidates. A large number of those who voted for him expect that his entry will be to quickly solve the people’s problems. these voters may be disappointed or even angry if it is not.
Therefore, we still have a split election. It’s hard to be confident in a complex world, with multiple binary factors and a political agenda that, as we’ve seen, has shifted for both candidates.
What to do in this scenario? Be less at risk, even more after rally in recent markets and with more cash.
The world of 2022 is very different from the world of 2002.
Rodrigo NataliChief Strategist of Inv Publications.
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