Brazil’s top court lifts Lula with ‘secret budget,’ social spending rulings

2:29 pm Monday, December 19th, 2022

SAO PAULO (Reuters) -Brazilian President-elect Luiz Inacio Lula da Silva scored two key victories on Monday, after the Supreme Court granted an injunction allowing him to increase social investment, while also outlawing an opaque congressional spending program.

In a decision late on Sunday, Brazilian Supreme Court Justice Gilmar Mendes granted an injunction that removes a 600-reais monthly allowance for poor families from the constitutional spending cap, giving a temporary green light for the payment to be extended into next year.

Then, in a Monday ruling, the full bench of the court ruled that the so-called “Secret Budget” program, which gives Congress greater control over public resources, was illegal.

Those two decisions are a boost for Lula, allowing him to fulfill a campaign pledge to increase social spending while also giving him greater negotiating power over congressional leaders by limiting their ability to extract concessions through untransparent means.

The “Secret Budget” program was used by far-right incumbent Jair Bolsonaro to win support in Congress. It distributed funds to lawmakers through amendments to bills, but was criticized for its lack of transparency.

Supreme Court Justice Roberto Lewandowski cast the deciding vote making the measure illegal, in a defeat for lower house leader, Arthur Lira, and Senate President Rodrigo Pacheco.

After the decision, Lira canceled his Monday agenda to meet with Pacheco.

Mendes’ decision, which still needs to be ratified by the full bench of the Supreme Court, takes the pressure off a constitutional amendment Lula is seeking to pass to allow him to fulfill a campaign pledge and invest more on the country’s poor.

The central component of the bill was raising the ceiling of the spending cap to include Lula’s social package. The bill has passed the Senate and now awaits a vote in the lower house.

Brazil’s real currency weakened early on Monday after Mendes’ ruling but later clawed back losses.

Lula’s incoming Finance Minister Fernando Haddad told reporters on Monday that talks over the bill would continue, despite Menders’ decision.

“It’s important for the country to bet on good politics, on negotiation, on institutionality, and for us to give strength to the economic policy that … will appease the market’s mood and show that Brazil will be on track from Jan. 1,” he said.

Investors said currency markets were seeking clarity on what the decision meant.

“Mendes’ decision left the market confused,” said Fabrizio Velloni, chief economist at Frente Corretora. “The dollar exchange rate is likely to be very volatile today.”

Lula’s bill aims to exempt at least 100 billion reais ($19 billion) from the spending cap next year in order to boost social welfare programs.

(Reporting by Eduardo Simões; Writing by Steven Grattan; Editing by Andrea Ricci)