Brazil markets slump on incoming government’s budget proposal

SAO PAULO, Nov 17 (Reuters) – Brazilian markets fell on Thursday after the administration of President-elect Luiz Inacio Lula da Silva proposed exempting about 175 billion reais ($32 billion) from spending limits on next year’s budget to pay for welfare programs. .

The drop came as Lula earlier in the day shrugged off the market’s reaction to his proposals and again criticized the spending ceiling, saying the government could not only think about “fiscal responsibility” but also about “social responsibility” .

The Brazilian real plunged more than 2% in early spot trading, weakening past $5.50 before paring some losses, while interest rate futures jumped and the benchmark stock index Bovespa (.BVSP) slipped about 2.4%.

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Lula’s transition team late on Wednesday proposed to lawmakers guidelines for a constitutional amendment that would establish a spending limit waiver to secure welfare programs, though without establishing how long the waiver would last.

Vice-president-elect Geraldo Alckmin, who is coordinating the transition on behalf of Lula, said Brazil’s Congress will have the final say on the proposal.

Analysts at XP Investimentos said in a note that they believe that Congress would work on a “leaner” version of the bill as “growing signs of a deterioration in the current fiscal framework and a significant expansion of spending have been weighed heavy on domestic financial assets.”.

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But Lula shrugged off the market’s reaction while speaking at the COP27 climate summit in Egypt, reaffirming his call for a growth target in addition to the inflation target and repeating criticism of the constitutional spending limit.

“The stock market will fall, the dollar will rise (against the real). Patience. The dollar does not rise and the stock market does not fall because of serious people, but because of people who speculate every day,” he said. .

Helder Wakabayashi, an analyst at Toro Investimentos, said markets would remain under pressure at least until the incoming government proposes a deadline for the waiver of the spending ceiling.

“The markets will not oppose something on the social side, but there has to be a counterpart. The current plan has reached almost 200 billion dollars and there is no time frame, so it sounds like something that will never end,” Wakabayashi said.

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Lula has yet to appoint a finance minister. Reuters reported Wednesday, citing sources, that it was seen in favor of leftist former Sao Paulo Mayor Fernando Haddad for the job, though no final decision had been made.

($1 = 5.4935 reais)

Reporting by Gabriel Araujo and Luana Maria Benedito; Edited by Steven Grattan, Alison Williams, Mark Heinrich and Nick Macfie

Our Standards: The Thomson Reuters Trust Principles.

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