Lula’s Cabinet Members Clash Over Plan to Shore Up Budget
(Bloomberg) — A proposal to shore up Brazil’s fiscal accounts is already running into resistance from members of President Luiz Inacio Lula da Silva’s cabinet, even though it delays the task of stabilizing public debt until the end of his term.
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The plan was presented by Finance Minister Fernando Haddad to Lula and other cabinet members, including Chief of Staff Rui Costa, during a Friday meeting that was inconclusive, according to government officials familiar with the discussion, who said the debate will continue on Monday.
All officials requested anonymity to reveal details of the private meeting.
The discussion around the new fiscal rule, which is crucial to appease investors worried about excessive government spending, has been partly delayed because Haddad and Costa aren’t seeing eye to eye on several different topics, according to three government officials.
Some members of Lula’s cabinet, including Costa, worry that the fiscal rule could become an obstacle for the social spending promised by the president.
While Lula had said he would like to formally announce the new fiscal rule before traveling to China on March 25, an adviser close to him now says he’s no longer committed to that deadline. Haddad has also said he’d like to unveil the plan before the central bank’s decision on interest rates next Wednesday.
Read More: Brazil Hurries Fiscal Plan to Push for Lower Borrowing Costs
Debt Stabilization
While details of the proposal haven’t been formally announced, Haddad’s plan is to eliminate next year’s primary budget deficits, which doesn’t take into account interest payments. Yet the government would need to deliver fiscal surpluses to stabilize public debt.
Brazil’s gross debt currently stands at 73.1% of gross domestic product and would reach around 80% of GDP by 2026, the Treasury estimated earlier this year, after Lula obtained congress approval to increase social spending.
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