BRASILIA (Portal) – Brazilian markets on Monday delivered a scathing verdict on leftist President Luiz Inacio Lula da Silva’s first full day in office after he vowed to prioritize social issues and ordered a budget-busting extension of a fuel tax exemption had.
Lula’s decision to extend the fuel tax exemption, which will deprive the Treasury of 52.9 billion reais ($9.9 billion) in tax revenue annually, was a scathing rebuke from his Treasury Secretary Fernando Haddad, a Labor Party (PT) loyalist had said would not be extended.
Haddad, wanting to allay market fears that he might fail to maintain fiscal discipline, took office on Monday and vowed to control spending. “We’re not here for adventure,” he said.
The markets did not seem convinced.
The real currency fell 1.5% against the dollar in afternoon trade, while the benchmark Sao Paulo Stock Market Index (.BVSP) ended down 3.06%. Shares in state-owned oil company Petrobras (PETR4.SA) fell nearly 6.45%.
In speeches he delivered at his inauguration in Brasilia on Sunday, Lula pledged that fighting hunger and poverty would be “the hallmark” of his third presidency, having previously ruled the country from 2003 to 2010.
Financial analysts said the start of Lula’s third presidency was in line with his campaign promises and looked similar to previous Labor Party policies that led to a deep recession.
Lula narrowly defeated far-right incumbent Jair Bolsonaro in October, putting South America’s largest nation back on the left lane.
On Monday, Lula ordered ministers to reverse steps taken by the previous government to privatize state-owned companies, including studies on the sale of Petrobras, the Post Office and state broadcaster EBC.
On Sunday he signed a decree extending a federal tax exemption for fuels, a measure passed by his predecessor to reduce their costs ahead of the election but cost the Treasury 52.9 billion reais (US$9.9 billion). -dollars) will withdraw. a year in tax revenue.
The federal fuel tax exemption will last a year for diesel and biodiesel and two months for gasoline and ethanol, according to a decree published in the Official Gazette on Monday.
Gabriel Araujo Gracia, an analyst at Guide Investimentos, said Lula’s plans to increase social spending, expand the role of state banks and remove a constitutional spending cap dated back to the worst days of the Labor Party.
“The policy reminds us more of the Dilma Rousseff government than Lula’s,” Gracia said, referring to Lula’s hand-picked successor, who was indicted during his tenure. “Their policies led to Brazil’s worst recession since 1929.”
Lula, who lifted millions of Brazilians out of poverty during his first two terms in office, slammed Bolsonaro for letting hunger return to Brazil and wept during his speech to supporters on Sunday as he described how poverty had risen again .
Allies said Lula’s newfound social conscience was the result of his 580 days in prison, Portal reported on Sunday.
Lula is entering his third term as president after persuading Congress to pass a year-long reais-170 billion increase in social spending package, in line with his campaign promises.
“The package ended up being larger than expected, with potential implications for public debt sustainability,” Banco BTG Pactual said in a research note.
Lula spent his first day in office meeting with more than a dozen heads of state attending his inauguration.
The meetings began with the King of Spain and continued with South American presidents, including left-wing leaders of Argentina, Chile and Bolivia, as well as representatives from Cuba and Venezuela and Vice President Wang Qishan of China.
On Twitter, Lula said he received a letter from Chinese leader Xi Jinping expressing a desire to increase cooperation between the two countries.
“China is our largest trading partner and we can continue to develop ties between our countries,” Lula added.
The new president will also attend the funeral of Brazilian soccer star Pele, who died on Thursday at the age of 82 after battling colon cancer.
Lula will pay his respects and 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; Editing by Matthew Lewis and Jonathan Oatis
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