Bismark famously said that only a fool learns from his own mistakes. A wise man learns from the mistakes of others.

Judging by his imprudent post-election remarks about managing the economy, one has to wonder whether Brazilian President Luiz Inacio Lula da Silva will have the wisdom to learn from the mistakes of others whose unorthodox fiscal policy experiments ended in tears.

In stating that one should not think about fiscal, but primarily about social, responsibility when formulating economic policy, one has to wonder how much Lula might have learnt from the unfortunate economic experience of former Dilma Rousseff, who served as Brazilian President between 2011 and 2016. Or how much might he have learnt from the more recent humbling experience of former UK Prime Minister Liz Truss. Dilma’s experiment with unbridled social spending ended with Brazil’s worst economic recession in the postwar period. Meanwhile, Liz Truss’s experiment with large unfunded tax cuts led to a sterling and gilt market crisis that forced her out of office.

There seems to be uncanny resemblances between Liz Truss’s first days in office and those of Lula. At a time of great world economic uncertainty when the world’s major central banks have become hawkish to rein in multi-decade inflation, both Liz Truss and Lula started their terms with reckless fiscal policy announcements. In the case of Liz Truss, it was an unfunded $50 billion tax cut. In the case of Lula, it was the proposal to carve out $37 billion from Congress’s public spending limit to finance social welfare spending on health and education.

In much the same way that Liz Truss’s budget proposal was made at a time of UK public finance weakness and was greeted with market dismay, so too have markets reacted negatively to Lula’s disregard for a widening budget deficit at a time of shaky Brazilian public finances. Of particular concern to the markets seems to be doubts about the sustainability of the country’s public finances. This has prompted a weakening in the Brazilian currency, a drop in stock market prices, and a rise in interest rate expectations for next year.

At 80 percent of GDP, Brazil’s debt ratio is high by emerging market standards. It also does not help that the country is now projected to run a primary budget deficit next year and that it has a dismal economic growth record. With the country’s per capita income having stagnated over the past decade and with little prospect for real economic reform under a Lula presidency, it is difficult to see how the country will grow its way out of its public debt problem.

In 2003, at the start of his first term as Brazilian president, Lula pleasantly surprised markets, which were bracing themselves for runaway inflation and a currency crisis under his left-wing leadership. He did so by largely hewing to a restrained fiscal policy and by picking a technically well-qualified economic team.

Today, Lula is beginning his presidency at a time when the world economy is much more challenged than it was in 2003 and when a global economic recession is widely expected next year. In these circumstances of less global risk appetite, there should be all the more reason for Lula to pick a technically sound economic team and to eschew fiscal policy experimentation for budget policy orthodoxy. If not, Lula should brace himself for the ignominious sort of sharp market-induced fiscal policy U-turn through which the UK conservative government has recently had to make to regain market credibility.

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