Lula campaign steps up outreach to financial markets - Valor International

With the presidential election approaching, contacts between members of President Lula’s reelection campaign and players in Brazil’s financial market have intensified in recent days in an effort to rebuild bridges with São Paulo’s financial district, known as Faria Lima. Since last week, several meetings have taken place, but they conveyed mixed signals: while officials from the Finance Ministry sought to ease concerns about public accounts, Sérgio Gabrieli, government program coordinator for the Workers’ Party (PT), took the opposite approach.

As first reported by Intraday, Valor’s financial markets blog, Treasury Secretary Daniel Leal and Public Debt Undersecretary Francisco Segundo took part in several meetings organized by banks and brokerages on Thursday, July 16.

Market participants who attended the events said Leal and Segundo sought to show that Brazil does not currently face a cash shortage. They also indicated, however, that the government may revise the bands established in the Annual Financing Plan (PAF) regarding the composition of public debt, reflecting the assessment that it may be difficult to meet the targets set at the beginning of the year for fixed-rate bonds and inflation-linked NTN-Bs (National Treasury Notes).

The National Treasury has struggled in recent weeks to issue large volumes of NTN-B bonds. After canceling an auction of inflation-linked securities one week, it subsequently sold only minimum lots in an effort to avoid putting additional pressure on the NTN-B market.

Participants in the meetings also said government officials indicated that changes to the parameters of Brazil’s fiscal framework would be necessary, along with an increase in the discretionary portion of the federal budget, to prevent a more explosive debt trajectory and restore some credibility to the management of public finances. This signal has also been conveyed by Finance Minister Dario Durigan, who on Friday took part in an investor meeting organized by UBS.

Lula’s campaign has concentrated its economic outreach around Durigan. Even so, Gabrielli also met with Faria Lima representatives on Friday (17) to present proposals that drew criticism from financial market participants, including higher minimum wages and capital controls. Sources familiar with the discussions told Valor that some of the ideas are being debated within factions of the PT, but stressed that they have not been endorsed by the Finance Ministry, the party’s national leadership, or Lula for inclusion in the government program.

During the meeting, Gabrielli argued that raising the minimum wage could encourage Bolsa Família beneficiaries to enter the labor market, while emphasizing that the social program remains an important tool for reducing inequality. In his view, inflation, the debt trajectory, and fiscal adjustment should be addressed through policies that reduce inequality.

Gabrielli also acknowledged that Brazil’s public debt is high, but said the main fiscal issue today is the need to resolve the dispute surrounding congressional earmark allocations. He further argued that there is room to improve the efficiency of public spending through better management, without revising constitutional minimum spending requirements for areas such as healthcare and education.

This article was translated from Valor Econômico using an artificial intelligence tool under the supervision of the Valor International editorial team to ensure accuracy, clarity, and adherence to our editorial standards. Read our Editorial Principles.