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Brazil’s leftist President Luiz Inacio Lula da Silva took office on Monday and the markets responded with an instant rout, sending shares of state-run Petrobras tumbling further just days after a CEO announced plans that sparked an investor run for the exit.
On Monday, Lula promised high-level social spending, including an extension of the fuel tax exemption–both moves Reuters says will cost Brazil’s treasury some $9.9 billion a year in lost income.
Brazilian markets responded with the Sao Paulo stock market index shedding 3.24%, according to Reuters, and a 6% loss for Petrobras. The real currency saw its value shaved by 1.5%.
Last week, Lula picked his political ally, Jean Paul Prates, as the new chief of Petrobras. Prates had accused the current state-run oil company leadership of driving Petrobras “off a cliff” by its singular focus on oil and gas and its meager attention to the energy transition, Bloomberg reports.
Under Prates, the new goal of Petrobras is to become a renewable energy giant–a notion that has not gone over well with investors.
Lula's inauguration speech has sparked investor fears that the new path will be highly interventionist, which the new president himself has indicated. In his first address to the nation, Lula promised more government intervention to promote economic development. Specifically, he mentioned that both Petrobras and the BNDES, the national development bank, should be driving the country’s growth.
Lula’s return to the presidency sees him replace populist far-right president Jair Bolsonaro, whose administration was mired in controversy. Lula’s own government was brought down by massive corruption in Petrobras, which led to the impeachment of his hand-picked successor in 2016. Lula’s return sparks investors' fears not only of interventionist policies, but also of a re-run of the endemic corruption that crippled Petrobras.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com