Finance Minister of the year
The Brazilian earned the award for his ability to get reforms passed, helped by his moderate and pragmatic style in an otherwise polarized political environment. A big result: the economy is growing faster than expected.
By Thierry Ogier
When Fernando Haddad swore in as Brazil’s finance minister at the start of the year, he had a lot going against him. There was widespread concern among investors that the new government of Luiz Inácio Lula da Silva would spend extravagantly, much like his Workers’ Party had in the past. But that’s not fully happened, in part thanks to Haddad. The finance minister has managed to gain approval for key economic reforms and build credibility in the new government, and the results show. The economy is growing at a faster rate than had been expected.
“He is the best possible finance minister for the market,” says Wilson Ferrarezi, a Brazil-based Latin America economist at consultancy GlobalData TS Lombard. “He has surprised on the upside.”
Unlike many of his predecessors, Haddad does not like to speak loudly to defend his arguments. What he does enjoy, however, is to confound his critics.
His best achievement so far has been on the growth front.
“If you remember what people were saying at the beginning of the year, some predicted a recession, others said Brazil would grow 1% or 2%. And everybody was wrong because we will grow 3%,” Haddad told reporters in late September. “We are at a growth level that is three times higher than what people used to think.”
This feat, partly a result of his efficient, moderate and pragmatic approach to running the economy in a still polarized political environment, is one reason why Haddad has won LatinFinance’s Finance Minister of the Year Award.
Haddad thinks the economy can grow even faster, helping to improve public finances.
“We may do even better than that in the fourth quarter if the reforms are voted on,” he said. “We can only reach a fiscal, social and environmental balance with growth. Everything becomes easier with economic growth.”
Haddad had to hit the ball running as far as reforms are concerned. As a prominent member of the leftwing Lula administration, his first mission was to convince investors that he will pursue a fiscally responsible policy agenda.
He soon put forward a so-called fiscal framework, which was swiftly passed by Congress. According to the new rules, the primary budget deficit, which excludes interest payments, will be zeroed next year thanks to an increase in tax collection.
The new fiscal framework has been criticized because the government does not envisage many cuts in public expenditure, and because the fiscal target looks out of reach to many investors.
“The primary target has a tolerance margin. [The result] can be a bit better or a bit worse,” Haddad has said. “It is challenging. There is no doubt about that. If it was not challenging, no one was going to talk about this. This puts pressure on all of us.”
To increase tax collection, Haddad has put forward a series of measures, including a reform of the Tax Resources Management Board. A new tax on the super-rich and offshore funds has yet to be approved.
The Lula government has also sent a tax reform bill to Congress, which has advanced to the Senate after gaining the nod of the lower house. In broad terms, the reform calls for the simplification of the tax system, which as it stands now is so complex that accountants often call it “maddening.” The reform calls for the merger of five taxes into two, and the introduction of a value-added tax system.
After 30 years of stalemate on this issue, Haddad has made some progress on the tax reform, and this has not gone unnoticed.
“Haddad has been sending the right signals on the fiscal framework and on the tax reform,” says Rafael Amiel, director of Latin America economics at US-based S&P Global Market Intelligence. “He has managed politically to get things done.”
Haddad’s first reward for his efforts came in July when Fitch Ratings upgraded Brazil’s sovereign credit rating to BB from BB- with a stable outlook.
“Fitch is the first of the large agencies to change Brazil’s rating. I always say and I still believe that harmony between powers is the key for us to recover investment-[grade] status,” Haddad has said, adding that he finds it “unbelievable” that the country is not investment grade like it was in 2008.
S&P Global Ratings changed the outlook on its BB- rating to positive from stable a month before Fitch.
The 60-year-old finance minister does not have a background in finance, except for a stint at local investment bank Itaú BBA. But he knows the rules: when he was mayor of São Paulo, the city regained investment-grade status.
Haddad is also a former education minister, and he became a presidential candidate in 2018 when Lula was briefly in prison for alleged corruption. He was defeated by the extreme right leader Jair Bolsonaro, but Lula gave him the finance portfolio four years later.
“Fernando is a relatively young leader who has assumed a position in Brazil that has no equal,” says Dario Durigan, Haddad’s deputy at the Finance Ministry. “He has a very strong background. He can discuss issues deeply. And he has managed to take this to the political arena. In Brazil, many politicians find it hard to discuss big issues. He can bring this to the political arena perfectly,” says Durigan, who was an adviser to Haddad when he was mayor.
“He is the kind of leader that Brazil needs,” Durigan adds.
Many investors value his pragmatism and his influence on Lula himself.
“He is a pragmatic, centrist figure, but he is also one of the few who can make Lula change his mind regarding fiscal issues,” says GlobalData TS Lombard’s Ferrarezi.
Hence, his credibility with the market.
Haddad is not only known as a skilled negotiator, but he has also emerged as a sort of peacemaker in Brasília. After months of open feuding between Lula and the governor of the independent central bank, Roberto Campos Neto, who was appointed by Bolsonaro, Haddad set up the first face-to-face meeting of the year between the two men in September. They successfully buried the hatchet. “It was an institutional meeting to build a relationship,” Haddad told reporters then. Markets now hope for a lasting peace.
Chile’s finance minister, Mario Marcel, came in as a close contender for the award.
“He has maintained control of the economy despite political challenges. The Chilean economy has adjusted gradually, minimizing output losses and containing external vulnerability,” says Martín Castellano, chief Latin America economist at the Institute of International Finance in Washington, DC.
Marcel is also credited for implementing a large fiscal adjustment in the post-pandemic recovery era.
“This has weighed severely on activity but has helped to reduce vulnerabilities in the economy (which looked worrying at points in 2021 and 2022),” says William Jackson, chief emerging markets economist at Capital Economics in London. “This sets the stage for a period of lower inflation, interest rate cuts and a period of faster and more stable growth.” LF