Synthesis of the Brazilian Economy

BRAZIL ECONOMICS - Report 02 Jun 2025 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

OVERVIEW

THE MASKS COME OFF

The series of crises generated by the Lula administration has shattered myths and exposed personal and systemic weaknesses. With no real plan for the country other than increasing public spending to keep the Workers' Party (PT) in power, the current model distorts the institutional role of the Executive, empowering the Legislative and Judicial branches and hindering the proper functioning of democracy. Still reeling from the negative effects of billion-real pension and benefit frauds, the IOF crisis emerged—this time led by Minister Haddad. The falling of the masks will help voters make clearer choices in 2026.

Haddad – With the creation of the so-called "fiscal framework," Haddad aimed to ensure the spending increase demanded by his party, the PT, while also earning the fiscal responsibility seal from public debt investors. From the start, it was obvious that such a balancing act could only work with higher taxes and/or reforms aimed at improving spending efficiency. Seeing a PT government cut spending would be a surprise, yet part of the market pretended to believe it, and the minister managed to maintain his reputation. At the height of his prestige, he promised to bring Brazil back to investment- grade status—a goal that is increasingly distant (as seen in Moody’s downgrade last Friday following his baseless optimism). No matter how much the flexibilities of the “framework” tried to obscure the picture, the proof of the pudding—a growing public debt—kept revealing the reality.

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