By Marcela Ayres
BRASILIA, May 11 (Reuters) – Brazilian President Luiz Inacio Lula da Silva’s flagship consumer debt renegotiation program did not expand credit for beneficiaries, BTG Pactual said in a report on Monday, possibly explaining why the effort failed to boost his popularity ahead of elections in October.
BTG economists Tiago Berriel, a former central bank director, and Bruno Martins drew their results from an assessment of the first version of the program, which was introduced in 2023. Lula launched a revamped version last week.
The new program, one of Lula’s big electoral bets, offers federal guarantees for the renegotiation of debts of borrowers earning up to five times the minimum wage, compared with twice the minimum wage in the first phase.
The leftist leader, who is seeking his fourth non-consecutive term, has seen his early lead evaporate and is now tied with his main challenger, Senator Flavio Bolsonaro, the son of far-right former President Jair Bolsonaro, in major run-off polls.
The program was designed to address a growing household indebtedness problem that, combined with punishing interest rates on costly credit lines, has prevented consumers from feeling the benefits of lower unemployment and easing inflation.
But the first version of the program, the report showed, failed to deliver a consumption boost for beneficiaries because it reduced leverage among beneficiary groups without generating a new round of credit.
Instead, the program was associated with a financial adjustment process among households, possibly reflecting new obligations stemming from debt renegotiation.
“Balance-sheet improvement appears to have been captured more by banks and/or redirected toward lower-risk groups, while direct beneficiaries began to carry renegotiated installments,” Berriel and Martins wrote.
This finding helps explain, they added, “why the program may not have generated a perceptible improvement in welfare in the short term: clearing one’s credit record does not automatically increase disposable income or effective access to credit.”
(Reporting by Marcela Ayres; editing by Manuela Andreoni and Paul Simao)
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