(Bloomberg) — Brazil’s Luiz Inacio Lula da Silva tapped the head of his Workers’ Party to a key cabinet role in a sign his government is taking a sharp turn to the left as he tries to turn around plummeting approval ratings.
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Lula named congresswoman Gleisi Hoffmann as his new Minister of Institutional Relations on Friday, putting a fierce critic of fiscal austerity and high interest rates into a key advisory role that also serves as the government’s chief legislative negotiator. She will replace Alexandre Padilha, who is slated to take over the Health Ministry as part of a broader cabinet overhaul.
The move rattled already-skittish investors, deepening skepticism about Lula’s commitment to fiscal austerity. Hoffmann has openly criticized Finance Minister Fernando Haddad’s efforts to shore up the country’s public accounts. The Brazilian real hit session lows after the announcement, falling as much as 1.46% against the dollar amid broad strength for the greenback.
But even within the government, the decision to name Hoffmann to such an influential post at such a delicate time for Lula’s presidency was greeted with shock, according to multiple government officials who spoke on condition of anonymity.
Lula has started the second half of his term this year with multiple challenges. His approval ratings have fallen to the lowest levels of his career as food prices soared; the economy is slowing as the central bank is expected to take the benchmark interest rate to 14.25% next month; and mounting budget deficits continue to put pressure on the Brazilian real.
He is now preparing a cabinet reform that could make room for more centrist parties, a strategy to bolster his political coalition ahead of the 2026 presidential election. But the selection of Hoffmann “is bad news,” said Paulo Nepomuceno, a trader on Mirae Asset’s derivatives desk. “The market doesn’t see her as a conciliatory figure, and she doesn’t have much influence in Congress either.”
Hoffmann, 59, previously served as chief of staff to former President Dilma Rousseff and is known for her fierce rhetoric and frequent targeting of anyone she sees as an ideological foe or threat to the president, even if they are ostensible allies.
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Since Lula returned to office in 2023, she has regularly blasted Brazil’s central bank over high interest rates, taking particular aim at former Governor Roberto Campos Neto before his term concluded last year. She has also served as a steadfast critic of Haddad’s efforts to rein in spending and pursue the government’s fiscal targets.
A longtime Workers’ Party operative, Hoffmann served as one of Lula’s most prominent defenders while he was in prison on a corruption conviction that was ultimately annulled, and later played a key campaign role in his 2022 election win over former right-wing leader Jair Bolsonaro.
Now, Lula believes she can help rebuild the broad front of support that pushed him to a narrow victory ahead of next year’s reelection campaign, a person close to the president said.
A Blow to Haddad
But the appointment is almost certainly a setback for Haddad, who has sought to convince Lula to pursue a cautious fiscal approach even as the president has sought additional spending to boost his popularity.
In Padilha, Haddad had an ally inside the presidential palace. The finance minister had already suffered defeats in recent internal debates over spending, and members of the economic team had hoped Lula would tap a more moderate lawmaker as Padilha’s replacement in order to help boost support in Congress, according to people familiar with the situation.
Now some on Haddad’s team see the nucleus of power shifting away from the minister and toward more expansionist fiscal voices like Hoffmann and Chief of Staff Rui Costa, the people said. Others are even more pessimistic, seeing her appointment as the end of the line for Haddad’s economic agenda, according to the people.
As soon as she was notified of her selection, Hoffmann called Haddad, according to a person close to her. But while the pair maintain a respectful relationship, their differing views on economic policy mean they are unlikely to find much agreement, the person said.
“It’s definitely a negative development for the real, as the decision shows a lack of willingness to impose fiscal austerity,” said Brad Bechtel, the global head of FX at Jefferies. “It’s a step in the wrong direction.”
–With assistance from Giovanna Bellotti Azevedo and Raphael Almeida Dos Santos.
(Updates market move and adds additional details and context throughout. An earlier version corrected the spelling of Hoffmann in the second paragraph.)
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