By Marcela Ayres and Ricardo Brito
BRASILIA, Sept 17 (Reuters) – Brazil’s leftist government on Thursday announced a 15% increase in benefits under the country’s flagship welfare program, which supports tens of millions of low-income people, and signaled a new initiative to help indebted households clear negative credit listings ahead of next month’s general election.
The measures aim to boost disposable income among Brazilians, whose finances have been strained by record levels of debt servicing, a vulnerability widely seen as weighing on President Luiz Inacio Lula da Silva’s prospects of winning a fourth non-consecutive term.
Opinion polls show the leftist leader losing ground among low-income Brazilians and running neck-and-neck with his main challenger, right-wing Senator Flavio Bolsonaro, the son of former President Jair Bolsonaro, in a potential runoff election.
The government says the move does not violate electoral law because it simply restores purchasing power lost to inflation. Flavio Bolsonaro, however, called it illegal.
“He knows he can’t do that, but it’s an act of desperation because he knows he has already lost,” the senator said at a campaign event.
Brazilian assets came under pressure after the announcements, with the benchmark Bovespa stock index falling more than 1% before erasing losses.
Speaking alongside Lula at the presidential palace, Planning Minister Bruno Moretti said the boost to the “Bolsa Familia” welfare program, a cornerstone of the social agenda of Lula’s Workers’ Party, would cost the government 5.8 billion reais ($1.13 billion) in 2026 and 22 billion reais in 2027.
The minimum monthly benefit will rise to 691 reais ($134.02) next month, from 600 reais.
Finance Minister Dario Durigan said the additional spending would be absorbed within existing budget allocations and would not represent a new expenditure, “so that we maintain our fiscal targets and fiscal results trajectory for the country.”
He added that spending tied to the program will amount to around 1.25% of gross domestic product in 2027 after the adjustment.
The increase will be implemented by presidential decree.
NEW DEBT-RELIEF INITIATIVE
In an interview published on Thursday by Extra, a Brazilian newspaper, Durigan also signaled that the government is designing a new program to help heavily indebted consumers and to feature in Lula’s presidential campaign.
Under the proposal being studied, the government could purchase debt at steep discounts to allow borrowers to clear overdue obligations, particularly older debts that creditors have largely written off, he said.
“It is about making it possible for people who today have more jobs, more income and greater access to quality services to start over,” Durigan was quoted as saying.
The Finance Ministry confirmed to Reuters that the debt-relief initiative is being designed. Officials, however, are still assessing which categories of debt would be eligible.
This effort would effectively represent another debt-relief measure only months after Lula relaunched “Desenrola,” a broad government-backed debt renegotiation program that uses state guarantees to help reduce borrowing costs.
Critics say the measures fail to tackle the root causes of rising household debt and risk encouraging borrowers to expect future government-backed debt relief, weakening incentives to remain current on their obligations.
Delinquency rates in Brazil have continued to climb to record levels as consumers grapple with high borrowing costs in an environment of elevated interest rates.
Investors have also demanded hefty risk premiums to finance the government, reflecting persistent concerns about its commitment to containing public spending growth.
POLITICAL PUSHBACK
A senior Bolsonaro campaign adviser, who asked to remain anonymous to discuss private deliberations, told Reuters a legal challenge to the Bolsa Familia increase is under consideration, either directly by the campaign or through allies in Congress.
Guilherme Augusto Mota, an electoral law specialist, said the measures could face scrutiny because they were announced so close to the election, but would not automatically violate election rules.
Brazil’s electoral court would have to examine “whether the increase stems from a regular and justifiable public policy or whether the policy was exceptionally altered to confer an advantage in the election,” he said.
There is a precedent. Jair Bolsonaro’s administration increased the value of the same cash transfer program months before the 2022 election, which Bolsonaro lost to Lula.
Lula administration officials had previously said no benefit adjustment was under consideration, and the 2027 budget proposal sent to Congress in August did not include funding for the increase.
($1 = 5.1560 reais)
(Reporting by Marcela Ayres; Editing by Gabriel Araujo and Paul Simao)
Comments