Lula’s political return adds to investor concerns in Brazil | Corruption News

Luiz Inacio Lula da Silva was fired from the Brazilian political scene after a judge handed down criminal convictions against the left-wing icon, adding to investors’ concerns that the country’s reform agenda could be derailed by an early campaign for the 2022 presidential election.

The federal court in the southern city of Curitiba was not competent to hear cases against the former president, including those that led to corruption sentences, Judge Edson Fachin wrote in a statement Monday. The news sent in stocks and the currency’s fall, deepening some of this year’s worst performance as Congress discusses approval of additional emergency spending to mitigate a new coronavirus outbreak.

Markets recouped some of the losses on Tuesday amid a strong rebound in global assets and, as fears that fiscal austerity measures would be watered down were allayed by lawmakers. The currency rose 0.1% at 1:40 p.m. in Sao Paulo, while the Ibovespa climbed 1.3%, with the two still lagging behind.

The move offers the greatest chance to date for a long-awaited return for a highly controversial figure in Brazilian politics. While Lula remains revered for lifting millions of citizens out of poverty, many also say he is a symbol of corruption and economic mismanagement. The four consecutive governments of his Workers’ Party ended abruptly in 2016 with the dismissal of Lula’s hand-picked successor, Dilma Rousseff.

The ex-president scheduled a press conference Wednesday morning at his former union headquarters in a working-class suburb of Sao Paulo – the place he crouched down when then-Carwash judge Sergio Moro said ordered his arrest in 2018. The conference was initially expected. Tuesday, but Lula postponed it while the Supreme Court decides when to resume discussions on Moro’s suitability as a judge.

“I see an 80% to 90% chance that Lula will be able to run by July 2022, the deadline for registering candidates for the electoral court,” said Debora Santos, political analyst at XP Investimentos. “We are in another context which favors Lula.”

Still, there are plenty of obstacles for Lula, 75, to regain the highest post in the country. His candidacy for next year’s vote will hinge on whether the courts have time to retry the former president from scratch – a tall order given Brazil’s notoriously bureaucratic legal system. In order not to be eligible under Brazilian law, as happened in the 2018 presidential election, he would have to be convicted and have the decision upheld by an appeals court.

Brazil’s prosecutor’s office also plans to appeal Fachin’s decision, which could spark a lengthy legal battle, O Globo newspaper reported, without saying how it got the information.

Kick off the elections

Lula’s return to the electoral agenda brings about an electoral debate that had not been expected for months. As the Brazilian economy exploded during the former president’s first years in office, which benefited greatly from rising commodity prices and his income redistribution plans, it began to suffer as Rousseff shifted to interventionist policies to artificially curb inflation and lower interest rates.

“Brazil’s 2022 elections started today,” said Thomas Traumann, a Rio de Janeiro-based communications consultant who has advised former ministers and presidents. “Lula today will not be the same Lula in 2002, with a message of peace and love favorable to the market. He will seek revenge, and he will blame the markets, the media and business leaders for the fall of the Workers’ Party.

The possibility of a repeat of the polarization seen in the 2018 election, when Bolsonaro faced Lula’s hand-picked candidate Fernando Haddad, is another key in what has already been a tumultuous start to the year. for Brazilian markets.

The real is down 11% so far this year, the worst among major currencies, as a raging virus outbreak leads to further lockdowns and increases pressure for the government to move away from pledges to cut prices. costs. Bolsonaro’s administration has circumvented public spending rules deemed essential by investors, funding emergency aid programs that provide temporary relief but no permanent solution to the pandemic’s toll on America’s largest economy Latin.

“If Lula is able to run again, the reform agenda would likely be out of place and the outlook for fiscal discipline would deteriorate,” said Brendan McKenna, strategist at Wells Fargo & Co. in New York. “The markets weigh heavily on fiscal austerity as far as Brazil is concerned.”

Luiz Inacio Lula da Silva greets his supporters after being released from prison in Curitiba, Brazil [File: Bloomberg]

On top of that, investors now face the odds of the charismatic and anti-austerity crusader’s rise to power. A possible race between Bolsonaro and Lula would create a “polarized election that will be decided by those who dislike Lula or Bolsonaro less,” said Creomar De Souza, chief executive of Brasilia-based consultancy Dharma Political Risk and Strategy.

Lula’s presence would also make it harder for a centrist candidate to gain traction, Eurasia Group wrote in a note.

Not everyone was shocked by the news.

“Lula has presided over some of the happiest times in Brazil, his program to give money to the poor, send children to school was very popular,” Mark Mobius, seasoned emerging market investor, told Boomberg TV . “I don’t think Lula’s return will necessarily be bad for Brazilian markets. I think he has learned his lesson about corruption.

Direct links

Lula has repeatedly denied wrongdoing and said he was a victim of political persecution. The prosecution of the former president should not have been carried out in Curitiba because the facts that have been raised do not directly relate to the Petroleo Brasileiro SA hijacking program, Fachin wrote in a statement on Monday.

Since 2014, the Brazilian oil producer known as Petrobras has been at the center of the Carwash investigation, the country’s largest anti-corruption investigation. In this context, the cases against Lula must be tried in a court in the capital Brasilia, according to Fachin.

The judge’s ruling is in line with defense arguments made over the past five years, lawyers for Lula Cristiano Zanin Martins and Valeska Teixeira Zanin Martins said in a statement. “Former President Lula has been unjustly imprisoned, his political rights have been unduly taken away and his property blocked,” they wrote.

Bolsonaro criticized the ruling, saying the judge had close ties to the Workers’ Party – Fachin was appointed to the court by Rousseff.

“Brazilians don’t want someone like this to show up in 2022. It was a catastrophic government,” Bolsonaro told reporters at the official residence in Brasilia on Monday.

Political force

Even out of the spotlight, Lula has proven that he can remain a political force to be reckoned with. A poll released over the weekend showed Lula had more potential heading into the 2022 election than Bolsonaro.

The Ipec survey showed that 50% of those polled said they could vote for Lula in the 2022 election if he ran, compared to 38% for Bolsonaro. Lula also showed a lower rejection rate compared to Bolsonaro – 44% to 56%, respectively.

“Lula must assume his position as Bolsonaro’s main rival and join forces to face this government disaster,” said Senator Humberto Costa, a close ally of the left-wing leader.

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