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Back in Brazil, Lula Faces Tough Choices in Forging New Government

BRASILIA (Reuters) – President-elect Luiz Inacio Lula da Silva returned to Brazil on Sunday, after basking in the glory of an international tour, to confront the tough task of defining his government amid jitters in financial markets and divisions in his coalition.

While Lula was cheered by allies in Portugal and at the United Nations climate summit, the challenging tradeoffs facing him back home were threatening to spoil his post-election party.

Brazil’s currency slipped about 5% and the benchmark Bovespa stock index fell nearly 8% in the past two weeks as investors have grown impatient with a lack of clarity about Lula’s key economic policies.

Members of Lula’s transition team have voiced contrasting views on 2023 budget talks and the leadership race for the Inter-American Development Bank (IDB). The president-elect has backed efforts to create a standing exception to one fiscal rule without proposing another.

“There are two Lulas. Abroad he is a legend that appears strong and victorious, regaining Brazil’s role as a world player, which is important. But at home things are very complicated,” said analyst Andre Cesar at Hold Legislative Advisors, a Brasilia political risk consultancy.

He said Lula’s first visit to Brasilia this month was quick and breezy, without extensive meetings to formalize the broad political front he needs to govern, since his leftist allies are a minority in Congress.

“The Lula myth is being put to the test,” Cesar added.

Lula was received like a rock star at U.N. climate talks in a Sharm el-Sheikh, vowing to crack down on deforestation in the Amazon, where illegal logging and gold mining have surged under outgoing far-right President Jair Bolsonaro.

But critics said the presidential honeymoon abroad was a mistake.

“Lula should have stayed here and not gone to the climate summit in Egypt. There are many problems and the county is boiling over,” said Jose Medeiros, a Congressman from the right-wing Liberal Party, set to become the largest opposition party when the new government takes office Jan. 1.

Even Lula’s allies have become anxious over the slow pace of decisions, with tensions mounting among advisers about the balance between social welfare and fiscal discipline.

Underscoring tensions on the transition team, Lula’s former Finance Minister Guido Mantega quit on Thursday amid criticism about his track record on fiscal policy and his resistance to Brazil’s successful nominee to run the IDB, Ilan Goldfajn.

(Reporting by Anthony Boadle; Editing by Brad Haynes and Tomasz Janowski)

Copyright 2022 Thomson Reuters.

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