Lula government discusses Brazil’s new fiscal framework with lawmakers

BRASILIA (Reuters) – Brazilian President Luiz Inacio Lula da Silva plans to unveil a long-awaited new fiscal framework before he travels to China at the end of the week but wants the proposal discussed privately with congressional leaders first, Finance Minister Fernando Haddad said on Monday.

The framework is seen as crucial to easing fiscal concerns after Lula obtained congressional approval for a multi-billion-real package that bypasses the constitutional spending cap to increase social spending and fulfill campaign promises.

Top members of his own Workers Party are pushing to ensure that the new fiscal rule does not hinder public investment, even though its format is not yet known.

Haddad said that meetings will take place through Tuesday under Lula’s guidance so that the new fiscal rules are debated with the heads of the Senate and the lower House as well as other political leaders.

After meeting some of them on Monday, Haddad told journalists he is “confident that we are in the final phase” but said the government is still deciding whether to announce the new fiscal framework along with a new proposal to regulate public-private partnerships.

Vice-President Geraldo Alckmin said during an event in Rio de Janeiro on Monday that Lula has not yet given his final word on the framework, which he said would combine factors such as the debt trajectory, a budget surplus, and spending control, without providing further details.

Haddad, asked about the possibility of the framework being presented before the central bank’s rate-setting meeting on Wednesday, replied that these were two different agendas and that the policymaker committee has its own dynamics.

He said the discussion process should not be rushed as the framework “needs to be solid, sober, and make sense to people”.

Leftist Lula, who took power in January, has repeatedly criticized the high level of interest rates, which has been held steady at a six-year high of 13.75% since September, amid cooling inflation. He argued that high borrowing costs would drag the economy and threaten a credit crisis.

Workers Party President Gleisi Hoffmann, who has previously clashed with Haddad, said there is excessive autonomy at the central bank. She has advocated for an expansionist fiscal policy and said that as the government expects lower economic growth this year “we need to increase public investments and not hold back any social spending.”

(Reporting by Marcela Ayres with additional reporting from Rodrigo Viga Gaier in Rio de Janeiro; Editing by Angus MacSwan and Grant McCool)