In Brazil, Lula beat Bolsonaro. Now comes the hard part.
By Jack Nicas and André Spigariol
The baseball caps, red with white block letters, were meant to deliver an unmistakable message: “Make Brazil 2002 Again.”
That was the first year that Brazil elected the leftist leader, Luiz Inácio Lula da Silva, as president.
In that first administration, from 2003 through 2010, he oversaw perhaps Brazil’s best moment, riding a commodity boom and an oil discovery to lift 20 million people out of extreme poverty and Brazil onto the world stage.
Now Lula is back, set to take the reins of Latin America’s largest nation Jan. 1, precisely 20 years after the start of his first administration.
But the nostalgia for Lula’s first go-round may quickly get a reality check.
In his second administration, he will confront a country that has drastically changed. Lula is inheriting an economy with less runway for growth, a presidency with less muscle and a polarized, internet-obsessed country where a sizable portion of the public views him as a criminal who stole the election.
“Politically speaking, he has much less power than he did, and he’s facing a much tougher challenge economically,” said Alexandre Schwartsman, an economist and a director of Brazil’s central bank during Lula’s first administration.
The various challenges signal that the honeymoon could be short for Lula after defeating President Jair Bolsonaro last month and blocking the far-right leader from a second term. While Lula is returning to the top job with plenty more experience, he has never faced many of the obstacles ahead.
In his first administration, China’s voracious appetite for Brazil’s soybeans, iron ore, oil and meat helped fuel a run of rapid growth that made Brazil the world’s sixth-largest economy by 2012, up from 14th when he began his term. That rise helped him reinvent the country with an expanded middle class, infrastructure investments and successful bids for the Olympics and World Cup.
But now Brazil has been mired in years of sputtering growth, and China and the global economy are weaker. Lula spent much of his campaign focused on getting Brazilians three square meals, and he has made clear that his new government’s top priority is directing more aid to the poor.
Yet how he navigates the country’s finances will be one of his biggest tests. Lula, during his last time in office, expanded government spending with economic tail winds at his back. Now they are not, and it appears the market is worried about his plans.
In public comments last week about his push to raise the federal spending limit, he said, “Why don’t the same people who seriously discuss the spending cap not discuss the country’s social issues? Why are poor people not part of the macroeconomics discussion?” The reaction from investors was swift. The Sao Paulo stock exchange fell 3.3%, its worst day of the year.
Lula wants to lift the spending limit to fund an increase in the minimum wage and an expansion of Brazil’s social welfare program. He wants to keep the roughly $115 monthly payments that Bolsonaro began giving to low-income families before the election, and he wants to add an additional $30 a month for each child in those families.
That will cost more than $13 billion in 2023 — yet Brazil’s budget has no room for additional spending.
That is in part because Bolsonaro spent up to $30 billion in economic stimulus before the election in an effort to win votes, including handouts to the poor and fuel subsidies, according to Daniel Couri, an economist who runs the Senate’s budget watchdog.
Marcelo Castro, a centrist senator who leads congressional budget talks, said he supported Lula’s effort to raise the spending limit, and he expected his colleagues would go along. But analysts said it was far from clear whether Lula could get enough votes, given the opposition from Bolsonaro’s party.
In his second administration, Lula is arriving with far more political baggage that could derail his agenda. When he left office at the end of 2010, Lula was maybe the most popular man in Brazil, with an approval rating above 80%. He handed the country over to his hand-picked successor and coasted into what was thought to be retirement.
Instead, he became the primary target of a sprawling corruption investigation that uncovered a vast kickback scheme inside his party and the Brazilian government. Lula was convicted twice on charges that he accepted renovations and a condo from construction companies seeking government contracts.
He was sentenced to 22 years in prison, but after 17 months, he was released. The Supreme Court ruled last year that the judge in his cases was biased and threw out the charges. The decision did not prove his innocence, but it cleared the way for him to run for office again.
Yet the scandal ruined much of the public’s trust in Lula and his Workers’ Party. On the campaign trail, Bolsonaro focused on Lula’s convictions. And now, in defeat, Bolsonaro’s supporters are citing them as evidence that he stole the election.
That leaves Lula in a weaker position than in 2003. Four months into his first administration, only 10% of the country disapproved of him.
Now Lula is so vehemently rejected by the right that after the election, thousands of Bolsonaro’s supporters massed outside military bases and set up hundreds of blockades on highways, trying to enlist the armed forces to stop Lula from taking office.
“This is our greatest challenge,” said Sen. Randolfe Rodrigues, a coordinator of Lula’s campaign who is in the running for a major role in his administration. “Everything else is important, but to recover the democratic culture in Brazilian life is our biggest responsibility.”
It also could make it difficult for Lula to govern.
In 2003, conservative parties were willing to work with Lula on his priorities. “This time, Bolsonaro hasn’t yet accepted his victory,” said Thomas Traumann, a political analyst who covered Lula’s first administration as a journalist and worked as the press secretary for Lula’s successor. “The pressure he will suffer is so much bigger.”
Still, the picture in Brazil may not be so dire. By many measures, the country’s economy is in far better shape than it was in 2003. Trade and gross domestic product are higher, and inflation and unemployment are lower.
But Brazil’s government has taken on enormous debt in recent years, and it now just exceeds 77% of the GDP, the threshold that economists have found slows a country’s economic growth. That leaves Lula with little financial flexibility to stimulate the economy without causing a new public debt crisis.
There is, however, one area where Lula could make an early and important impact: the Amazon rainforest, whose health is crucial to the fight against climate change. Bolsonaro significantly cut funding and staffing for the agencies that protect the forest and the Indigenous groups that live there.
Rodrigues, who is being considered as Lula’s environment minister, said the plan was to immediately reconstruct the government’s presence in the Amazon and deconstruct Bolsonaro’s policies. Lula’s transition government said it plans to add nearly $200 million to the government’s environment budget next year. And Wednesday, Lula is set to address the United Nations climate change summit, known as COP27.
While analysts said Lula would have the power to shift the environmental policy on his own — and that the investment would be minimal — how it would play out was less clear. Loggers, miners and ranchers in remote areas of the country are unlikely to give up easily on their main source of income.
“For four years, there was no state there. They could do whatever they wanted,” Traumann said. “How do you stop those people?”