SAO PAULO (Reuters) – A Brazilian Supreme Court Justice granted an injunction late on Sunday that removes a 600-reais monthly allowance for poor families from the constitutional spending cap, giving a temporary green light for the payment to be extended into next year.
The decision, which caused the real currency to weaken against the dollar on Monday, is a victory for leftist President-elect Luiz Inacio Lula da Silva.
Removing the social spending program from the country’s spending cap is a central component of a constitutional amendment Lula is seeking to pass to allow him to fulfill a campaign pledge and invest more on the country’s poor.
Justice Gilmar Mendes’ injunction, which still needs to be ratified by the full bench of the Supreme Court, strengthens Lula’s hand in negotiations with lower house chief Arthur Lira. The bill has already passed the Senate, and Lira is seeking concessions for it to pass in the lower house.
Lula’s incoming Finance Minister Fernando Haddad told reporters on Monday that talks over the bill would continue, despite Mendes’ decision.
“It’s important for the country to bet on good politics, on negotiation, on institutionality, and for us to give strength to the economic policy that … will appease the market’s mood and show that Brazil will be on track from Jan. 1,” he said.
Investors said currency markets were seeking clarity on what the decision meant.
“Mendes’ decision left the market confused,” said Fabrizio Velloni, chief economist at Frente Corretora. “The dollar exchange rate is likely to be very volatile today.”
Lula’s bill aims to exempt at least 100 billion reais ($19 billion) from the spending cap next year in order to boost social welfare programs.
Lula’s aides cheered the decision.
“A victory against hunger and for the dignity of all Brazilians!” Senator Randolfe Rodrigues, a member of Lula’s transition team, tweeted.
(Reporting by Eduardo Simões; Writing by Steven Grattan)
