Brazil’s economy improves during President Lula’s first year back, but a political divide remains

RIO DE JANEIRO (AP) — Brazilian President Luiz Inácio Lula da Silva likes to boast he had a good first year after returning to the job. The economy is improving, Congress passed a long-overdue tax reform bill, rioters who wanted to oust him are now in jail, and his predecessor and foe Jair Bolsonaro is barred from running for office until 2030.

Still, the 78-year-old leader has struggled to boost his support among citizens and lawmakers. Some major setbacks, including a series of votes by Congress to override his vetoes, signaled that Lula’s future could be less productive in a Brazil almost evenly split between his supporters and Bolsonaro’s.

“Brazil’s political polarization is such that it crystallized the opinions of Lula and Bolsonaro voters beyond the economy,” said political consultant Thomas Traumann, the author of a recent best-selling book on Brazil’s political divisions. “These groups are separated by very different world views, the values that form the identity of each group are more important than food prices or interest rates.”

Lula took office on Jan. 1, 2023, after a narrow victory over Bolsonaro in October 2022. At the beginning of his four-year term, only one fourth of Brazil’s Congress sided with him. Business and opposition leaders feared Lula had gone too far to the left.

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A riot led by Bolsonaro supporters destroyed government buildings in the capital of Brasilia on Jan. 8 and more turmoil looked certain. Former Finance Minister Paulo Guedes, among other conservatives, forecast Lula’s policies would make Brazil’s economy soon turn as sour as those in crisis-ridden Argentina and Venezuela.

“Six months to become Argentina. One year and a half to become Venezuela,” Guedes said in an interview.

Fast forward to December.

Brazil’s economy is set to grow 3% this year instead of the 0.6% expected by market economists. Inflation looks controlled at about 4.7% on a yearly basis, slightly above projections but far from the double digits of recent years. The unemployment rate fell to 7.5% in November, one percentage point below the day Bolsonaro left office.

The Sao Paulo stock exchange hit record levels in December, rising above 134,000 points for the first time in its history. Brazil’s real currency is also rising against the U.S. dollar. All that brought back the optimistic, keen-to-travel-abroad Lula who had been missing during almost a decade of personal gloom.

“We needed to get our house fixed (in 2023), put things into place,” Lula said in a meeting at the presidential palace on Dec. 12. “And now I say get ready. Next year, the Brazilian economy will not let anyone down.”

Yet some polls have shown unchanged support for the president, at between 38% and 40% since January 2023. The numbers didn’t pick up even after the announcement of a higher minimum wage in 2024, the buildup of Bolsonaro’s legal woes or Brazil’s return as a player in foreign affairs under Lula.

About a third of Brazilians consider Lula’s presidency about average and another third deeply dislike the way he governs Latin America’s powerhouse economy, which rose once again to the top 10 biggest in the world after years of sinking.

Lula’s supporters are at home, but Bolsonaro’s are still taking to the streets.

Though not as numerous as in the recent past, the few thousand protesters asking Congress to impeach Lula on corruption allegations have shown the resilience of the far-right leader’s political base.

Bolsonaro was barred in June 2023 from running for office again until 2030 after Brazil’s electoral court ruled that he abused his power and cast unfounded doubts on the country’s electronic voting system.

Engineer Eduardo Carlos Santos, 73, believes Brazil’s economy recovered due to the work of Bolsonaro. A devout evangelical, as with many in the former president’s base, he says there is a cultural war against conservatives and that leftists should have no place in government.

“Like it or not, Bolsonaro left a better economy and Lula is just reaping the fruits of that,” said Santos, who blames the economic difficulties during the previous presidency on the COVID-19 pandemic and health restrictions. “Lula is a former inmate, sentenced for corruption. He had his time in office, we needed to move the country to another direction. I don’t see a bright year coming ahead.”

Lula was imprisoned for alleged corruption in 2018, when he led polls to return to the presidency. He was released after the country’s Supreme Court ruled the following year that prison sentences could only take place after every appeal has been exhausted — which was not the case with Lula. Later, the same court ruled that the judge in Lula’s case, now a pro-Bolsonaro senator, was biased against him.

Lula’s difficulties on the streets also appeared in Congress, which voted several times to override his vetoes, especially on environmental legislation. The most recent was in December, when lawmakers reinstated legislation to undo protections of Indigenous peoples’ land rights. The decision set up a new battle between lawmakers and the country’s top court on the matter.

Brazil’s Congress also decided to override Lula’s veto of a multibillion-dollar bill that exempts multiple sectors of the economy from paying some taxes. The bill was introduced in 2011 and would lose validity at the end of 2023. It will remain in place until 2027, one year after the president’s term ends.

Other measures depleted the federal treasury of budget money by enabling lawmakers to approve earmarked resources for themselves, without interference from the executive branch.

Lula’s allies have blamed some defeats on Speaker Arthur Lira, once a staunch Bolsonaro supporter who has operated more quietly. Lira, who will remain in his position for another year, can’t run for reelection under current congressional rules.

Supporters of the president are also upset with his decision not to appoint another woman to replace Chief Justice Rosa Maria Weber on the Supreme Court. They also complain about the leftist leader’s slow approach in providing more resources for welfare programs and inclusion.

That’s the case of Daniela Fernandes, 34, who works in a government agency in Sao Paulo.

“I believe we can improve our economy, but I am also hoping that the revenue gets spent with the poor, not in making the rich richer with high interest rates and construction work that only suits some lawmakers,” he said. “I am here because I want our president to tame the military that sided with Bolsonaro all these years, to challenge the far-right on the streets too.”

Traumann, the political consultant, said Lula’s future will depend on how he moves between antagonistic groups within Brazilian society.

“Dealing with this divided country is surely the biggest challenge for the Lula administration next year,” he said.