Lula Will Boost Brazil’s Real With Credibility Shock, Aide Says

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(Bloomberg) -- Brazil urgently needs to regain investor confidence and Luiz Inacio Lula da Silva has the capacity to put the economy back on track, helping boost the country’s currency along the way, according to one of the closest aides to the former president and front-runner in October’s election.

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A stronger real would help policy makers bring inflation to target, said Fernando Haddad, who’s running for state governor of Sao Paulo and participating in talks with business leaders alongside Lula.

“If we have a credibility shock, the currency will go to its right level,” Haddad said Thursday in a video interview from his home in Sao Paulo. “A change in administration by itself will provide a new wind that’s needed for a calmer first year of government, when we’ll need to approve measures to land this plane that’s flying without a pilot.”

President Jair Bolsonaro has lost control of the currency, which has weakened more than 25% against the dollar since he took office, because his government squandered its credibility both internationally and domestically, according to Haddad. He added that the fight against inflation will also require an increase in production and supply of goods, particularly food for domestic consumption.

“The government has neglected the production of food that goes to the table of workers as opposed to food going into export containers,” he said.

Inflation running above 12% a year has become a major obstacle to Bolsonaro’s re-election, as most Brazilians blame the incumbent for the country’s economic woes. A Datafolha poll released this week showed 55% of interviewees wouldn’t vote for the president under any circumstance, particularly women and the poor. While still a favorite among business people, he has lost 7 percentage points among that group, and is now backed by 42% of them, according to the survey.

Read More: Lula Seeks Growth With Fiscal Responsibility, Economic Aide Says

Part of the business community that supported Bolsonaro’s election in 2018 is now “jumping ship,” Haddad said. He acknowledged that one of the main questions is how Lula would handle public finances if elected, considering his criticism of the current spending cap rule that limits the growth of government expenditures.

“We are not giving details about a replacement rule for the spending cap because economists are analyzing alternatives,” he said. “But we’ll have credible fiscal targets and nobody is more experienced than Lula and his running mate Geraldo Alckmin in terms of fiscal responsibility.”

Regional Leadership

Haddad, a 59 year-old lawyer and teacher who has developed a political career at the Workers’ Party, ran for president against Bolsonaro in 2018, when Lula was jailed and barred from competing due to graft and money laundering convictions. A former mayor of Sao Paulo, he now leads the gubernatorial race in the state.

Lula’s possible return to lead Latin America’s largest economy would crown a recent wave of leftist leaders winning across the region, from Gabriel Boric in Chile to Gustavo Petro in Colombia. That would leave Lula in a privileged position to reassert Brazil’s influence among its neighbors, Haddad said.

“Everyone sees in Lula a leader capable of reinserting the Brazilian economy into the international scenario,” he said.

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