Fiscal Therapy: Brazil Looks the Wrong Way Down a One-Way Street

Summary

The Bolsonaro Administration will end with strong fiscal performance
The incoming Lula administration has circulated lead trial balloons on several fiscal issues including suspending privatizations and changing fiscal rules
Removing or disfiguring the spending cap or creating a net debt-gdp target may follow the same disastrous wrong way practiced between 2008-2016
The abuse of the net debt measure was one of the reasons that President Dilma Rousseff was impeached in 2016 as it violated the Fiscal Responsibility Law

If the new government follows its stated intentions, inflation will stop falling, interest rates will rise, growth will sputter, the equity market will underperform, and fixed income assets will command a high real return.

The Bolsonaro Administration will end with strong fiscal performance
The incoming Lula administration has circulated lead trial balloons on several fiscal issues including suspending privatizations and changing fiscal rules
Removing or disfiguring the spending cap or creating a net debt-gdp target may follow the same disastrous wrong way practiced between 2008-2016
The abuse of the net debt measure was one of the reasons that President Dilma Rousseff was impeached in 2016 as it violated the Fiscal Responsibility Law

If the new government follows its stated intentions, inflation will stop falling, interest rates will rise, growth will sputter, the equity market will underperform, and fixed income assets will command a high real return.