During Luiz Inácio Lula da Silva’s first term as president of Brazil, one of the phrases most used by him and his ministers was “the cursed inheritance” – a reference to the near-crisis on financial markets underway as Lula took office in January 2003. Many observers found the phrase ironic given that much of the turmoil was caused by fear among investors that a Lula government would do what his leftwing PT (Workers’ Party) had always promised, and spend the country into debt default.

As is well known, Lula surprised investors by committing his government to maintaining the pillars of macroeconomic stability introduced by his predecessor: a floating exchange rate, primary budget surpluses (before debt payments) big enough to keep the ratio of public debt to gross domestic product on a downward course, and inflation targeting, under which the central bank has been free to set interest rates to keep inflation in check.