Brazil's Lula needs minimum $29 billion waiver from spending cap to meet campaign promises, says aide

The transitional government of Brazil's President-elect Luiz Inacio Lula da Silva hopes to obtain Congress approval for a minimum 150 billion reais ($29 billion) waiver from the constitutional spending cap to meet campaign promises, congressman Reginaldo Lopes said on Friday.

The amount represents a significant reduction from the proposal officially filed in Congress to exempt 198 billion reais from the cap for four years starting in 2023, which would cover Lula's entire term.

Lopes, the leader of Lula's Workers Party in the Lower House, told reporters in Brasilia that a two-year waiver might be the path if there is a political agreement.

The waiver proposal had triggered negative market reactions, with economists warning it could push public debt to record levels and force the central bank to resume interest hikes after it paused an aggressive monetary cycle to tame inflation.

"If I have to say that there is a floor (for the proposal), in fact, it would be 150 billion reais ... I would say that it is the minimum of the minimum," said Lopes.

He said he hoped that the negotiations on the text would be closed next Wednesday so the bill could be voted on in the Senate and forwarded to the Lower House.

The proposal exempts the "Bolsa Familia" welfare program from a constitutional spending cap. It also removes some public investments from the ceiling, equivalent to a higher-than-expected percentage of federal revenues.

According to Lopes, there may be changes during the negotiations so that opening more budget space from the excess collection also occurs in 2022 to unblock the tight budget of outgoing president Jair Bolsonaro.

($1 = 5.2250 reais)