Brazil markets tumble on Lula’s first full day in office

BRASILIA, Jan 2 (Reuters) – Brazilian markets gave a subdued verdict on leftist President Luiz Inacio Lula da Silva’s first full day in office on Monday, after he promised to prioritize social issues and ordered an extension of the fuel tax exemption.

Lula’s decision to extend the fuel tax exemption, which will deprive the Treasury of 52.9 billion reais ($9.9 billion) a year in tax revenue, was a stinging rebuke from his finance minister Fernando Haddad, a loyalist of the Workers’ Party (PT) who had said so. it would not be extended.

Haddad, seeking to allay market fears that he would be unable to maintain fiscal discipline, took office on Monday, pledging to control spending. “We’re not here for adventures,” he said.

The markets didn’t seem convinced.

The real currency lost 1.5% in value against the dollar in afternoon trade, while the Sao Paulo stock index (.BVSP) ended up 3.06%. Shares of state oil company Petrobras ( PETR4.SA ) retreated nearly 6.45%.

In speeches delivered on Sunday at his inauguration in Brasilia, Lula promised that the fight against hunger and poverty would be “the hallmark” of his third presidency after two previous mandates in the country from 2003 to 2010.

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Financial analysts said the start of Lula’s third presidency was in line with his campaign promises, and appeared similar to previous Workers’ Party policies that led to a deep recession.

Lula narrowly defeated far-right Jair Bolsonaro in October, putting South America’s largest nation back on a left-leaning path.

On Monday, Lula ordered ministers to revoke steps to privatize state-owned companies taken by the previous administration, including studies to sell Petrobras, the Post Office and state-owned transmission company EBC.

On Sunday, he signed a decree that extends the exemption for fuel from federal taxes, a measure passed by his predecessor aimed at lowering its cost in the preparation of the elections, but which will deprive the Treasury of 52.9 billion reais ($9.9 billion). a year in the tax income.

The federal tax exemption for fuels will last one year for diesel and biodiesel and two months for gasoline and ethanol, a decree published in the official journal showed on Monday.

Gabriel Araujo Gracia, an analyst at Guide Investimentos, said Lula’s plans to increase social spending, expand the role of state-owned banks and abolish a constitutionally mandated spending ceiling harkened back to the worst days of the Party’s government. of the Workers.

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“The policies remind us of Dilma Rousseff’s government rather than Lula’s,” Gracia said, referring to Lula’s successor, who was deposed while in office. “His policies led to Brazil’s worst recession since 1929.”

Lula, who lifted millions of Brazilians out of poverty during his first two terms, criticized Bolsonaro for allowing Brazil to return to hunger, and wept during his speech to supporters on Sunday as he described how poverty had increased again.

Allies said Lula’s new social conscience was the result of his 580 days in prison, Reuters reported on Sunday.

Lula began his third presidential term after convincing Congress to pass a one-year, 170 billion reais social spending package in line with his campaign promises.

“The package ended up being bigger than expected, with potential repercussions for the sustainability of the public debt,” Banco BTG Pactual said in a research note.

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Lula spent his first day in office meeting with more than a dozen heads of state who attended his inauguration.

The meetings began with the King of Spain, and continued with South American presidents, among them the leftist leaders of Argentina, Chile and Bolivia, as well as the representatives of Cuba and Venezuela, and Vice President Wang Qishan of China.

On Twitter, Lula said he had received a letter from Chinese leader Xi Jinping expressing the desire to increase cooperation between the two countries.

“China is our biggest trade partner, and we can also expand the relations between our countries,” added Lula.

The new president also attended the vigil of Brazilian soccer star Pele, who died on Thursday at the age of 82 after battling colon cancer.

Lula will pay his respects and pay tribute to Pele and his family on Tuesday morning, the president’s office said in a statement.

($1 = 5.3633 reais)

Reporting by Anthony Boadle, Marcela Ayres and Gabriel Araujo; Edited by Matthew Lewis and Jonathan Oatis

Our standards: Thomson Reuters’ principles of trust.


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