Haddad Attacks Selic at 14.25%: What Changes in the Fiscal Debate
Fernando Haddad, former Minister of Finance and pre-candidate of the PT for the government of São Paulo, reopened a debate on Friday that has divided economists for decades: who is the villain of Brazilian public accounts, spending or interest rates? For Haddad, the answer is clear. The Selic at 14.25% per year, according to him, "creates an unnecessary problem" and is the main driver of the state's indebtedness.
The statement was made during an interview on the program No Osso, from the group Derrubando Muros. Haddad stated that the basic rate should not have reached 15% last year and that the Central Bank should have started the cycle of cuts earlier. These are, in his words, his two main objections to the conduct of monetary policy.
"You cannot achieve a primary surplus that compensates for this interest rate. It will kill people to pay this interest rate," said the former minister. This phrase summarizes an argument gaining traction in government sectors and parts of the market: with the cost of debt consuming an increasing share of the budget, fiscal effort becomes insufficient by definition.
The Weight of Interest on Brazilian Public Debt
The numbers help to understand Haddad's point, even if they do not resolve the discussion. With the Selic at 14.25%, the nominal cost of Brazilian public debt exceeds R$ 900 billion annually, according to estimates from the National Treasury. For comparison, the entire federal budget for health is around R$ 200 billion. In terms of GDP, nominal interest expenses already exceed 7%, a level that places Brazil among the countries that spend the most on debt service in the world.
However, the fiscal argument has another face. Economists linked to the financial market and the Central Bank itself argue that the high Selic is a consequence, not a cause, of fiscal imbalance. In this view, the expansion of public spending and the perception of fiscal risk pressure inflation expectations, forcing the Central Bank to maintain restrictive interest rates for longer. As we explained in this analysis of the Brazilian macroeconomic scenario, the relationship between fiscal and monetary policy is circular, and attributing blame to a single factor often oversimplifies the real dynamics.
Promised Surplus and Historical Context
Haddad also highlighted that, for the first time in many years, President Lula will submit to Congress a budget proposal with a primary surplus at the end of his term. According to the former minister, this has not happened since Lula's second term. The terms of Dilma Rousseff, Michel Temer, and Jair Bolsonaro did not leave budget forecasts with surpluses for their successors.
This data deserves context. Brazil recorded consistent primary surpluses between 2003 and 2013, a period that coincided with the commodities boom and allowed for a reduction in the debt-to-GDP ratio. Starting in 2014, with the recession and the government's tax exemption policies under Dilma, the country entered a sequence of primary deficits that was only interrupted sporadically. The fiscal framework approved in 2023 attempted to reestablish a trajectory of balance, but the achievement of the targets has been questioned by analysts closely monitoring budget execution.
For Haddad, the continuity of fiscal sanitation initiated between 2023 and 2026, a period in which he led the Finance Ministry, could "allow for a radical change in monetary policy after the elections." In other words: if the government delivers reasonable fiscal results, the next Selic cycle could be structurally lower.
What the Market Thinks About Haddad's Thesis
The market's reaction to statements like this tends to be skeptical. The futures interest rate curve, the main thermometer of expectations, continues to price in the Selic rate above 13% for the end of the year, according to data from B3. The Focus Bulletin, a weekly survey by the Central Bank with economists, projects inflation above the target for the next 12 months, which theoretically justifies the maintenance of restrictive interest rates.
However, there is a significant portion of managers and economists who partially agree with Haddad. The argument is that the Central Bank may have erred in timing, keeping interest rates high for too long and generating a fiscal cost that feeds back into the very problem it is trying to solve. This view gained followers after the monetary tightening cycle that brought the Selic to 15%, considered by some analysts as excessive given the economic activity indicators at the time.
Economist André Lara Resende, one of the formulators of the Real Plan, had already raised a similar thesis in academic articles: excessively high interest rates can, paradoxically, worsen fiscal and inflationary dynamics by increasing the cost of debt and reducing economic growth. The discussion is far from reaching a consensus, but the fact that a former Minister of Finance and likely candidate for governor of São Paulo adopts it as a political banner shows that the topic has gained traction outside of economics departments.
So what? What does this mean for investors?
For investors, Haddad's statement matters less for its technical content and more for its political signal. If the PT carries the anti-high Selic banner into the 2026 campaign, the debate over the autonomy of the Central Bank will return to the center of the electoral dispute. This could generate additional volatility in Brazilian assets, especially in long-term interest rates and the exchange rate.
In the short term, nothing changes. The Central Bank continues to operate autonomously, and the Copom decides the Selic based on technical models, not political pressure. But the attentive investor knows that monetary policy does not exist in a vacuum. The next president of the Central Bank will be appointed by the government elected in 2026, and the tone of the current debate anticipates the type of pressure the institution may face.
Meanwhile, Brazilian fixed income continues to offer real returns above 7% per year on long-term Treasury bonds, a level that attracts foreign capital and rewards local investors well. The question the market is asking is how long these returns will be sustainable, and whether the cost to the real economy has already exceeded the benefit of keeping inflation under control.
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