Brazil's Real Problem Isn't Just Lula. It's the System.

Why blaming one president misses the bigger picture — and why Brazil must fix the structures holding ordinary people back.

Whenever Brazil's currency weakens, interest rates rise or investors become nervous, the same accusation returns: Lula is ruining the economy.

But is it really that simple?

Brazil's economic problems existed long before Lula returned to power. Expensive credit, excessive bureaucracy, inequality and a complicated tax system have frustrated ordinary Brazilians for decades, under governments of both left and right.

Perhaps it's time to stop blaming political personalities for every economic problem and start examining the system itself.

The great Brazilian contradiction

Brazil is rich in natural resources, agricultural strength, entrepreneurial talent and economic potential. Yet millions of people struggle to finance a home, buy a car or build financial security.

Why?

One major reason is the cost of credit.

Brazil's high interest rates make borrowing expensive for families and businesses. A small entrepreneur who cannot afford financing may never expand. A family seeking a mortgage can face years of repayments at punishing rates.

Meanwhile, people with substantial savings can benefit from attractive returns on certain interest-linked investments.

There is an uncomfortable imbalance: money can earn a good return simply by being invested, while people who need money to improve their lives pay dearly to borrow it.

Banks are essential to a functioning economy, and they are not solely responsible for Brazil's high rates. Inflation, default risks, funding costs and economic uncertainty all matter. But Brazil needs more competition, more affordable lending and a financial system that does more to support productive investment.

The Selic: necessary medicine, painful side effects

The Central Bank uses the Selic to control inflation. Keeping rates high can be justified when inflation expectations remain elevated.

But high rates have consequences. They discourage investment, increase household debt costs and make government borrowing more expensive.

Brazil cannot simply slash interest rates without risking renewed inflation and currency pressure. Yet neither can it treat expensive credit as a permanent solution.

The country must address the underlying problems: fiscal uncertainty, structural inefficiencies, weak productivity and the factors that keep lending costs so high.

Monetary policy can control inflation. It cannot, on its own, fix an economy in which access to capital remains so expensive.

Brazil’s Economic Problems: Is Lula Really to Blame?

Lula's critics often portray social spending as economic irresponsibility. That is too simplistic.

Take the income-tax reform introduced in January 2026. Eligible individuals earning up to R$5,000 a month became exempt from personal income tax, with partial relief extending to R$7,350.

For an ordinary worker, retaining more of their salary can mean better food, education, healthcare or less reliance on expensive credit.

Lower-income households tend to spend a greater proportion of additional income, supporting local businesses and domestic demand. Redistribution can therefore serve an economic purpose as well as a social one.

This does not mean every policy is automatically good. The government must finance its commitments sustainably, and the revenue expected from higher-income taxation must materialise.

But the proper question is not whether helping lower earners is irresponsible. It is whether the policy is well designed, properly funded and delivering measurable benefits.

A fairer distribution of income and a healthy economy need not be opposing goals.

Is Brazil's system holding itself back?

Brazil's constitutional framework protects democratic rights, limits executive power and establishes important safeguards. Those protections should not be confused with unnecessary bureaucracy.

However, complex regulations, rigid expenditure commitments, legal uncertainty and an inefficient tax system can make it harder for businesses to invest and governments to reform.

The answer is not to dismantle democracy. It is to modernise institutions, simplify rules and remove unnecessary obstacles to economic activity.

Brazil needs a system that protects its citizens without making economic progress unnecessarily difficult.

These challenges are bigger than Lula. Every president inherits them.

But what about government overspending?

Here, Lula's critics have a legitimate point.

Persistent deficits and rising public debt can undermine confidence, increase borrowing costs and leave less money available for future investment.

Brazil cannot spend without limits and expect no consequences.

However, not all spending is equal. Funding effective healthcare, education, infrastructure and poverty reduction is different from wasting public money on poorly designed programmes.

The important questions are what public spending achieves, how it is financed and whether it strengthens the country's future economic capacity.

Lula must demonstrate that social progress and fiscal responsibility can coexist. If he fails, the people he wants to help may ultimately suffer from higher inflation, expensive credit and weaker economic growth.

A weaker real doesn't tell the whole story

Currency movements are often treated as political scorecards. A falling real becomes proof of government failure; a rising real becomes proof of success.

Reality is more complicated.

Exchange rates respond to fiscal policy, interest-rate expectations, global markets and political uncertainty. Sterling's movements against the real also reflect developments in the UK.

Investors are entitled to worry about debt and fiscal credibility. But markets measure risk and expected returns; they do not, by themselves, measure whether poverty is falling or ordinary families are living better.

Brazil needs both credible public finances and policies that improve living standards.

The challenge is to achieve both.

What Brazil really needs

The country needs more than another political battle. It needs structural reform.

• Cheaper, more competitive credit so families and businesses can finance their futures.

• Responsible public finances that protect valuable social programmes without allowing debt to become unmanageable.

• Simpler taxation and less bureaucracy so businesses can grow and employ more people.

• Investment in education, infrastructure and productivity to generate sustainable economic growth.

• Strong democratic institutions that provide stability, transparency and predictable rules.

None of this can be achieved overnight. Nor can any president solve every problem alone.

The real measure of leadership

Lula deserves recognition when his policies improve ordinary people's lives. He deserves criticism when spending, economic management or political decisions undermine long-term stability.

The same standard should apply to every president, regardless of ideology.

Replacing Lula with a right-wing leader would not automatically fix Brazil's banking system, bureaucracy, productivity or public finances.

The real question is whether Brazil can create an economy where a worker can afford a home, a business can obtain reasonable financing and hard work offers a genuine route to a better life.

Brazil's problem is bigger than Lula. It is a system that too often makes economic advancement harder for those who need it most.

The answer is neither blind loyalty to a president nor blind faith in financial markets. It is a serious commitment to reform.

Because the true measure of a country's success is not simply how wealthy its investors become, how strong its currency looks or how much the government spends.

It is whether ordinary people have a fair opportunity to build a better future.

Take care!

Prof. Carl Boniface