(Bloomberg) -- President Luiz Inacio Lula da Silva said his government had taken steps to safeguard Brazil’s fiscal rules and reaffirmed his support of incoming central bank chief Gabriel Galipolo, his first public comments since returning to Brasilia following emergency surgery.
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The remarks came just hours after Brazilian lawmakers gave final approval to the core parts of his government’s plans to cut spending, an effort to address mounting concerns over Brazil’s fiscal deficits.
Congress watered down key elements of the government’s proposals in a series of votes this week. But speaking alongside Galipolo and Finance Minister Fernando Haddad in a video posted to social media, Lula said his government would “remain vigilant” about the need for “further measures” to curb spending in the near future.
“We are more convinced than ever that economic stability and the fight against inflation are the most important things to protect the salary and purchasing power of Brazilian families,” Lula said, adding that his administration had done what was necessary to shore up the country’s so-called fiscal framework.
The Brazilian real extended gains in the wake of Lula’s remarks, while swap rates continued to fall. The benchmark stock index rose to its highest level of the day.
Markets have been underwhelmed by the government’s plan to cut spending by 70 billion reais ($11.5 billion) over the next two years. A currency selloff intensified after the plan was unveiled in late November, plunging the real to record lows amid deepening investor skepticism about Lula’s commitment to fiscal restraint.
Haddad told reporters Friday morning that the fiscal impact of congressional changes was only about 1 billion reais — smaller than what some economists project — and that the government should conduct routine spending reviews going forward.
Analysts interpreted Lula’s comments as a sign that the leftist leader wanted to demonstrate unity inside his government on its approach to the country’s fiscal outlook.
The video signaled a Lula “who understands that a different type of gesture is needed,” said Igor Barenboim, chief economist of Reach Capital. “It was a very important gesture that at least gives hope” for spending containment, he added.
Central Bank