President Luiz Inácio Lula da Silva’s government has been accused of political interference in some of Brazil’s biggest companies, prompting alarm among investors who fear a repeat of heavy-handed interventions from the last period of leftwing rule.
Shares in state-controlled oil major Petrobras fell 10 per cent in a single day this month after it opted not to pay extraordinary dividends, contrary to analyst expectations, in a decision that its chief executive said came from Lula and his ministers.
Mining company Vale has also been affected after the administration faced accusations, which it denied, of improperly seeking to get a controversial ally of Lula appointed as its next chief executive.
In addition, Brasília has pushed to reverse an element of the privatisation of power utility Eletrobras by previous far-right president Jair Bolsonaro.
In a still unresolved case, last year it petitioned the Supreme Court to overturn a legislative clause capping the government’s voting rights at 10 per cent, below the roughly 40 per cent of equity it still owns in the listed group.
The controversies have raised the spectre of state activism that often failed or proved costly when Lula’s party was previously in power earlier this century, which following a boom ended in a deep downturn for Latin America’s largest economy.
Eduardo Figueiredo, head of Brazilian equities at the UK asset manager Abrdn, said: “Given past experiences of undue political pressure did not end well, we see these incidents having an impact beyond the companies mentioned . . . ultimately making it harder for Brazil to attract investments.”
A former trade unionist who governed for two terms between 2003 and 2011, Lula’s election manifesto in 2022 called for a bigger role for the state and higher public spending, with the goal of boosting living standards in the nation of 200mn.
During the campaign he promised to manage the economy with moderation, but recent antagonistic remarks by the 78-year-old veteran politician have dismayed the business class.
“Brazilian companies need to agree with the Brazilian government’s development thinking. That’s what we want,” he said last month, after saying Vale — a private-sector multinational — “belongs to Brazil”.
After Petrobras’s share price drop, Lula described the market as a “voracious dinosaur” that “wants everything for itself, nothing for the people”.
The noise around Brazil’s two most internationally successful enterprises has caused concern in corporate circles, where executives had hoped that Lula’s pragmatism would dominate his second stint in office.
The leftist’s earlier presidency was characterised by steady growth and a widening middle class, with millions lifted out of poverty. He largely stuck to economic orthodoxy during his first four-year mandate, before shifting towards fiscal expansion and interventionist policies.
This more statist approach was turbocharged by his chosen successor, Dilma Rousseff, who was blamed by many Brazilians for dragging the country into its worst recession on record a decade ago, contributing to her 2016 impeachment.
Over 13 years in office, Lula’s Workers’ Party, or PT, lavished cheap public loans on favoured industries and companies to create “national champions” such as meatpacker JBS, with mixed results. Many big infrastructure projects went unfinished.
Investor sentiment towards the South American nation has recently “deteriorated”, said Thierry Larose, emerging markets bond portfolio manager at Swiss bank Vontobel.
“These random statements by Lula are absolutely counterproductive,” he added. “It’s a shame because he’s done well in the past and the current state of the economy is not so bad.”
With robust gross domestic product growth of nearly 3 per cent last year and a strong trade balance, the country risked wasting a favourable moment by “trying to re-implement old toxic policies”, he added.
Mario Marconini, managing director at political consultancy Teneo, said the various episodes “all align with Lula’s antiquated view of how the government can and should intervene in ‘Brazilian champions’, since they somehow ‘owe it’ to the population.
“It also reveals the president’s increasing need to resort to catchphrases that might restore decreasing popularity,” added Marconini.
The presidency insisted there had been no political interference in any of the cases. It said Petrobras’ ordinary shares had gained more than 60 per cent since the start of Lula’s third term, while the company recently posted the second-highest profit in its history.
Lula’s backers have insisted the government has the right to influence Petrobras, given it is the controlling shareholder with just over half of voting power.
However, opponents fear a repeat of the mismanagement of the PT years, when fuel subsidies enforced by the government to tame inflation cost the company an estimated $40bn. Petrobras was also at the centre of a massive bribery scandal revealed in the vast “Car Wash” investigation.
While Bolsonaro fired a series of Petrobras chief executives in anger at high fuel prices, he otherwise left the company to pursue its strategy of divestments as it focused on petroleum production and profits.
By contrast, Lula wants it to reduce shareholder payouts in favour of greater investment in areas like renewables and refineries, aiming to stimulate economic activity.
In the case of Vale, corporate governance experts said there was no legal basis for government involvement in chief executive selection at the group, which was privatised in 1997 and is one of the world’s largest iron ore suppliers.
An independent board member at the miner resigned this month alleging “nefarious political influence” in its leadership succession process.
Officially Brasília only has a dozen special “golden shares” in the company that grant veto rights such as blocking a change in name or relocation of headquarters, but in practice it can exert sway through the pension fund of a state-controlled bank that is among Vale’s top investors.
The government has now ditched attempts to place Guido Mantega, a former PT finance minister, at the helm of Vale, according to people familiar with the matter.
Energy and mines minister Alexandre Silveira denied there had been intrusion at either Vale or Petrobras. “This doesn’t stop us, as policymakers and regulators, from keeping a firm hand on the companies with regard to the country’s interests,” he told the Financial Times.
Lula supporters say his industrial policy to revive Brazilian manufacturing is already bearing fruit, with investments totalling $14bn announced so far in 2024 by global carmakers.
With Brazil’s congress dominated by conservatives, analysts said the president could encounter a backlash if he shifted in a more radical direction.
Jive Investments chair Luiz Fernando Figueiredo said: “Without a doubt, the [government’s] impulse is terrible. Once again, we’re going to test our institutions to see how much they can resist.”
Additional reporting by Jamie Smyth, Myles McCormick and Beatriz Langella
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