Former Brazil’s President Luiz Inacio Lula da Silva speaks in Sao Paulo
Former Brazil's President and current presidential candidate Luiz Inacio Lula da Silva speaks during a meeting with society representatives for the second round of elections, in Sao Paulo, Brazil, October 10, 2022. Reuters

Brazilian presidential candidate Luiz Inacio Lula da Silva has proposed a broad consumer debt renegotiation program backed by government guarantees, aimed at relief for lower-income families if he wins an Oct. 30 runoff election, a senior adviser said.

Economist Guilherme Mello, who is advising Lula's Workers Party, told Reuters the government would partially guarantee renegotiations of up to 95 billion reais ($18.2 billion) of non-bank debts such as power, water, retail and phone bills, for consumers earning up to 3,600 reais ($677) per month.

The first step of the proposed program, called "Desenrola Brasil," would be to build credit bureaus centralizing data on those consumer debts to coordinate discounts from creditors. Renegotiated debts would be partially covered by a government guarantee fund of 7-16 billion reais, Mello said.

"These are very reasonable amounts for the government to contribute," he added. "You can have a design based on tax credits that banks have, you have several possibilities to design this fund."

The details of the plan, described broadly in Lula's leftist presidential platform, come after right-wing incumbent Jair Bolsonaro announced a debt renegotiation program for some 4 million clients of state bank Caixa Econ?mica Federal.

Nearly 70 million Brazilians have been blacklisted by credit scoring agencies after the pandemic and surging inflation battered families' budgets, weighing on an economic rebound.

Mello, who leads the team drafting economic proposals for Lula at the leftist Perseu Abramo think tank, said the government would set a minimum discount for renegotiating debts in the program and prioritize creditors offering more relief. He said preliminary calculations for the guarantee fund assumed a default rate of 25% and a discount of 30-70% on debts.

Advisers are designing the program with an initial focus on non-bank debt because it represents 72% of total household liabilities, he said. But they are also studying strategies to encourage restructuring of bank debt at lower interest rates by reducing lenders' compulsory deposits.

($1 = 5.3189 reais)