Brazil Markets Fall After Lula’s First Day, but Country Posts $62b Trade Surplus for 2022

Brazil's President Luiz Inacio Lula da Silva, his wife Rosangela "Janja" da Silva and Chief Raoni walk through the ramp of the Planalto Palace after Lula's swearing-in ceremony, in Brasilia, Brazil, January 1, 2023. REUTERS/Ricardo Moraes  
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BRASILIA, Jan 2 (Reuters) – Brazilian markets delivered a withering verdict on leftist President Luiz Inacio Lula da Silva’s first full day in office on Monday, after he pledged to prioritize social issues and ordered a budget-busting extension to a 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 fiscal income, was a stinging rebuke of his finance minister Fernando Haddad, a Workers Party (PT) loyalist who had said it would not be extended.

Haddad, who is seeking to dispel market fears that he might not maintain fiscal discipline, took office on Monday, pledging to control spending. “We are not here for adventures,” he said.

Markets seemed unconvinced.

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

In speeches delivered at his inauguration in Brasilia on Sunday, Lula promised that tackling hunger and poverty would be “the hallmark” of his third presidency after two previous stints running 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 earlier Workers Party policies that led to a deep recession.

Lula narrowly defeated far-right incumbent Jair Bolsonaro in October, swinging South America’s largest nation back on a left-wing track.

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

On Sunday, he signed a decree extending an exemption for fuels from federal taxes, a measure passed by his predecessor aimed at lowering their cost in the run-up to the election, but which will deprive the Treasury of 52.9 billion reais ($9.9 billion) a year in fiscal 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 gazette showed on Monday.

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

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

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

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

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

“The package ended up being bigger than expected, with potential repercussions 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 who attended his inauguration.

The meetings started with the king of Spain, and continued with South American presidents, among them the leftist 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 had received a letter from Chinese leader Xi Jinping expressing a desire to increase cooperation between the two countries.

“China is our biggest trading partner, and we can further expand relations between our countries,” Lula added.

The new president is also set to attend the wake of Brazilian soccer star Pele, who died on Thursday at 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; Editing by Matthew Lewis and Jonathan Oatis
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Brazil posts record trade surplus of $62.3 bln in 2022

BRASILIA, Jan 2 (Reuters) – Brazil posted a $62.3 billion trade surplus in 2022, official data showed on Monday, a record in the series started in 1989.

In December, the trade surplus was $4.8 billion, said the Development, Industry, Trade and Services ministry. That exceeded the $3 billion surplus forecast in a Reuters poll with economists.

The 2022 result were above the most recent expectations of the Jair Bolsonaro government, which in October had projected a trade surplus of $55.4 billion.

Total exports for the year also reached a record high of $335 billion, a 19.3% growth, helped by a boost in prices in the agriculture and livestock sector.

Imports, meanwhile, jumped 24.3% and were also record-breaking, at $272.7 billion.

Both ends of the trade flow were affected by a sharp increase in prices, which rose much higher than the volume of commercial transactions: 13.6% on average for exports and 23.4% in imports.

Higher prices of certain commodities also favored the country’s exports, as in the case of soybeans, which had a 20.8% increase in the value of exports in 2022, to $46.7 billion.

The value of crude oil shipments grew 39.5% to $42.7 billion.

Iron ore and concentrates exports, meanwhile, fell 35.3% in value to $28.9 billion, amid lower demand from China, whose economy slowed in 2022 as strict COVID-19 control measures affected activity.

In December alone, exports grew 14% compared with the previous year, to $26.6 billion. Imports reached $21.9 billion, or 12% above the last month of 2021.

Reporting by Marcela Ayres and Isabel Versiani; Editing by David Gregorio
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