BTG Pactual economists Tiago Berriel, a former central bank director, and Bruno Martins examined the initial iteration of President Luiz Inacio Lula da Silva's consumer debt renegotiation program and concluded it did not expand credit for those who benefited. Their findings were published in a report assessing the first version of the program, which was launched in 2023.
The report arrives as Lula introduced a revised edition of the policy last week. The updated program broadens the income eligibility threshold for federal guarantees on debt renegotiation to borrowers earning up to five times the minimum wage, up from twice the minimum wage under the initial phase.
The program was designed to address rising household indebtedness and the impact of high interest rates on expensive credit products - factors that had limited consumers' ability to benefit from lower unemployment and easing inflation. Yet according to Berriel and Martins, the first phase did not produce the intended boost in consumption among beneficiaries.
"Balance-sheet improvement appears to have been captured more by banks and/or redirected toward lower-risk groups, while direct beneficiaries began to carry renegotiated installments," Berriel and Martins wrote.
The economists interpret this pattern as a household-level financial adjustment rather than a reopening of credit channels for the renegotiated borrowers. They added that clearing a credit record does not automatically increase disposable income or restore effective access to new credit.
"Why the program may not have generated a perceptible improvement in welfare in the short term: clearing one’s credit record does not automatically increase disposable income or effective access to credit," they wrote.
Political stakes accompany the economic assessment. Lula, who is seeking a fourth non-consecutive term, has seen an early lead diminish and is now tied with his main challenger, Senator Flavio Bolsonaro, in major run-off polls ahead of October elections. The revised debt program was one of the administration's prominent electoral measures.
BTG's evaluation suggests the initial policy improved aggregate balance sheets in ways that did not translate into immediate welfare gains for the households targeted. That outcome may help explain why the program failed to generate a clear and rapid increase in consumer spending or a noticeable improvement in public perception in the short term.
In sum, the report indicates that while the policy altered the distribution of financial risk and improved certain balance-sheet metrics, it did not spur a new round of borrowing for direct beneficiaries or quickly raise their disposable income.
Context and next steps
The central findings come from the first-phase assessment; the revised program expands eligibility and includes federal guarantees for a larger income band. Whether the changes in the new edition will alter the dynamics observed by BTG is not evaluated in the report and remains to be seen.