After being carried to re-election by his popularity with the poor, Brazilian President Luiz Inacio Lula da Silva is striving to reassure the business community he will not abandon market-friendly policies to create jobs and boost income, according to Reuters. On Monday night Lula was forced to address rumors of an imminent departure of Finance Minister Guido Mantega. He also insisted he would maintain the pillars of current economic policy -- inflation targets, a floating exchange rate, and a primary budget surplus to manage public debt. "We will continue with a responsible fiscal policy, we won't touch the inflation target," the president said in a television interview. The comments helped calm financial markets on Tuesday. The currency and stocks bounced back marginally in early afternoon trading after dropping on Monday on worries about the future of Lula's economic team. Despite four years of economic policies that helped make Brazil a Wall Street favorite, some investors still have lingering doubts that the former union leader, who preached debt default for decades, genuinely believes in economic austerity. Analysts say Lula is in a bind over how to balance the need to quicken slow economic growth while not alienating investors. "If he touches the central bank (to reduce interest rates), that'll unsettle financial markets," political scientist David Fleischer said. "But with this slow growth, Brazil won't go anywhere. The president faces a delicate dilemma." The latest uncertainty surged after several cabinet members, emboldened by Sunday's victory, said Lula would reduce interest rates and increase public spending to help accelerate growth in his second term. Tarso Genro, Lula's top political advisor, even declared the "end of the Palocci era" in reference to Lula's former market-friendly finance minister, who was synonymous with austerity but forced to resign over a bribery scandal. The Lula government has been easing fiscal discipline over the past year. The 12-month primary budget surplus, which excludes interest payments, fell to 4.28 percent of gross domestic product in September from near 5.2 percent a year earlier. Lula gave Mantega little more than a lukewarm endorsement on Monday night. "What I can say is that Guido is my finance minister until I want, and when I don't want him, he won't be minister," Lula said in another television interview. "But he won't leave because of some comments and rumors." Dilma Rouseff, Lula's cabinet chief, who on Sunday said economic growth would be a second term "obsession," later said the government would have to "streamline the apparatus and cut costs to maintain investments and social spending." Some investors like what they heard from Lula and his aides. "The first moment of concern over internal politics has gone by, Lula has ... in a certain way refuted the comments from Tarso Genro," said Miriam Tavares, foreign exchange director at brokerage AGK Corretora in Sao Paolo. Other investors were less convinced. Alexandre Schwartsman, chief economist of ABN Amro in Sao Paulo and a former central bank director in the Lula government, said the contradiction between Lula and his aides was "mind-boggling" and did not bode well for unity in the Lula camp. Lula is expected to give a televised speech on Tuesday evening.
