Lula Has Not Demonstrated Fiscal Discipline, While Flávio’s Commitment to Spending Cuts Remains Unclear, Says Seneca Co CEO
For Daniel Wainstein, the impact of interest rates on people’s lives is similar to that of inflation in the 1990s. However, voters do not clearly perceive this impact in their daily lives and, as a result, candidates are unlikely to address the issue during the campaign.
Seneca Evercore advises companies across different areas, including mergers and acquisitions (M&A), debt restructuring, debt capital markets transactions, such as receivables certificates, and equity offerings. The firm has advised on R$25 billion in M&A transactions over the past five years and R$2 billion in debt transactions over the past twelve months. With business activity growing, the firm has recently acquired a bank.
However, across all these areas, Daniel Wainstein, Co CEO of Seneca, says that persistently high interest rates have had a harmful impact on clients.
“Brazil cannot withstand another year with interest rates at this level,” he says. “Business owners cannot withstand it.”
In his view, President Lula and PL candidate Flávio Bolsonaro are running neck and neck in the 2026 election, and neither is expected to signal a meaningful effort to address the country’s fiscal accounts before the election. Therefore, Wainstein says, the market will closely monitor the first 100 days of the next administration to assess and position itself in relation to fiscal discipline.
He says he does not know whether Lula wants to be remembered as the “father of the poor” or as the president who tightened fiscal policy and put the economy back on track. Regarding Flávio, the issue is likely to remain unattractive politically because it is unpopular. However, he may ultimately be more effective on that front.
Meanwhile, households and companies will continue to suffer from the effects of high interest rates. According to Wainstein, their negative impact is comparable to that of inflation before the introduction of the Real Plan. “People are employed, but their income levels are very low,” he says.
Below are excerpts from the interview:
How do you view the electoral landscape?
Today, it is 50% versus 50% in terms of the chances of Lula or Flávio Bolsonaro winning the election. Normally, we would say that the incumbent president has an advantage in the race, but the current environment is far from favorable for the incumbent. During the pandemic, with everything that happened and when we did not exactly have exemplary management, the race was already effectively 50 50. Today, with the economy not performing particularly well, companies and consumers under significant pressure and interest rates at high levels, the current government is far from popular. More than ever, either Flávio or Lula will win by a photo finish.
What does the market expect?
The market expects greater fiscal discipline. The debate around the economic agenda is very limited, but the prevailing view is that we need much greater fiscal rigor because the major burden today, which in the past was inflation, is now interest rates. We do not have high inflation, but these real interest rates, at their current levels, inhibit private sector activity and suffocate companies. Their revenues grow in line with inflation in the prices of goods, while their liabilities, or debt, grow according to interest rates. Most companies are dealing with inflation of 4% to 5%, while at the same time paying 20% to 25% on their liabilities. With each passing year, the situation deteriorates. We can see this in the number of judicial reorganization filings. This has not yet been reflected in unemployment statistics, but in practice, disposable income is steadily declining, precisely because consumers are also paying interest rates at these levels. The electoral scenario we see today appears to reflect some hope that greater fiscal discipline may emerge.
Regardless of who wins?
It is more difficult to see this under continued PT leadership. This administration has shown no indication of fiscal discipline during Lula’s government, and actions speak louder than words. There is some hope that something different from the current situation could be better. But this is more wishful thinking than anything concrete because Flávio Bolsonaro’s own rhetoric regarding fiscal discipline is still not particularly clear. It is not popular to discuss this issue, but it should be. Today, the greatest burden on the population is real interest rates.
For the population, are interest rates today what inflation was in the past?
Exactly. And they affect everyone indiscriminately, although those who are more leveraged are the ones who pay the most and are least able to afford it. What we have today, essentially, is a situation in which financial investors, who accounted for approximately 25% of M&A volume in Brazil in 2019, represent less than 6% this year.
Why is that?
First, the economy is not growing at an encouraging pace. Second, the exit alternative traditionally available to private equity funds, which acquire stakes in private companies, grow them and later sell them at a profit, namely IPOs, has not existed for quite some time. It has been more than five years since we had a genuine IPO window, and the IPOs that were completed performed very poorly. The prospect of a new window opening is becoming increasingly remote. Third, the private equity model, anywhere in the world, relies on leverage, or the use of borrowed funds. With interest rates at current levels, that strategy does not work. These funds have generally performed poorly, have been unable to raise additional capital, and international investors have ultimately left Brazil.
Why is this M&A indicator important?
To some extent, it reflects investors’ lack of confidence in this business model. It also reflects financial investors’ lack of confidence that the benchmark interest rate will decline and that the economy will return to growth. Companies, suffocated by such high interest rates, are caught in the snowball effect we are seeing today. The positive aspect is that nonfinancial strategic investors remain interested in Brazil. I have seen particularly strong interest from China in Brazilian assets, as well as from investors in the Middle East and Japan. Asia appears to have genuinely discovered Brazil, while Brazil’s relationship with the United States is highly strained. But when companies cannot grow and consumers cannot spend, the economy does not grow. This makes fiscal discipline increasingly critical as the starting point for a virtuous cycle that we do not see emerging in the near term.
Would a signal from the candidates be enough to change this trajectory?
The market is skeptical. The current government has spent four years doing the opposite. It is difficult for Flávio Bolsonaro to signal something along these lines because it is not politically popular. At the beginning of 2027, the market will pay extremely close attention to the measures adopted by the government during its first 100 days in order to assess the extent to which the administration is genuinely committed to this agenda.
Is there an awareness that the fiscal problem is as serious as inflation was before the Real Plan?
No. The government understands it and business owners understand it, but although the general population is suffering from high interest rates, the impact is not the same as going to the supermarket and realizing that prices increased overnight. People are employed, but their income levels are very low.
Do you see a crisis similar to the one experienced under the Dilma administration on the horizon?
Brazil cannot withstand another year with interest rates at this level. Business owners cannot withstand it. Once this starts translating into unemployment, the situation could genuinely become unsustainable. History shows that when people lack the minimum income required to maintain a basic standard of living, disruptive periods can emerge. From the outset, the next government needs to send a strong signal and take action to ensure that conditions become at least minimally sustainable for businesses and, consequently, for the country as a whole.
Do you see any possibility of a third alternative emerging?
No. In the current environment, unfortunately, no one has been able to establish themselves as a viable third alternative.
If Flávio wins, do you see any institutional risk?
In the recent past, we faced institutional risk. When Carlos de Almeida Baptista Junior, former Commander of the Brazilian Air Force, provides a detailed account of an attempted coup in the recently released book Eu disse não: uma trincheira antigolpista, there is no reason to dismiss his account. Believing that there was no risk of institutional breakdown is simply ignoring the evidence. January 8 represented a very significant brush with disruption. It is also impossible not to remember what happened on the roads around the time of the election. There is a risk of institutional rupture, but I believe it is low. The market is not even pricing such a risk. It may be considered remote, but assigning it a probability of zero is difficult.
If Lula is elected, will he want to leave a positive legacy?
What does leaving a positive legacy mean? Being remembered as the “father of the poor”? Or as the government that tightened fiscal policy and managed to put the economy back on track? I do not know exactly how he wants to be remembered. Perhaps he believes he can postpone this ticking time bomb and essentially continue using government spending to fund measures that the population needs. Unfortunately, measures consistent with the budget now need to be adopted. The excessive spending we see today is incompatible with our fiscal situation.
How do you view the international environment?
It is very difficult for Brazil to maintain its traditional position of neutrality in diplomatic relations given the current geopolitical environment. Nevertheless, Brazil continues to have a large consumer market, remains a major commodities producer and has significant investment potential in infrastructure, agriculture, mining and energy. Brazil continues to be strategically relevant globally and remains attractive to international investors, particularly Chinese investors. However, the global environment resembles a return to the Cold War, accompanied by high asset price volatility.
How are you positioning the business?
We believe in Brazil so strongly that we are acquiring a bank. Our business is performing surprisingly well because companies facing difficulties need to take action. Whether that means selling part of their businesses or renegotiating or extending their debt maturities, we ultimately work to find a solution. Foreign investors seeking to enter Brazil need an advisor. The credit market is under pressure, but there are areas, such as the Minha Casa, Minha Vida housing program, where we have been very active. There are still geographic pockets in the country with significant pent up housing demand, and the real estate sector is an area that requires substantial financing. Brazil currently has a dynamic in which large banks are losing market share to firms such as Seneca and other independent players, whether in credit, wealth management, credit cards or other financial services segments.
Published on 09/10/2026 and available at:
Comments