Lula wages his final campaign as Brazil’s presidential frontrunner

Six weeks from Brazil’s election, the talk of its campaign season is less about who will win than what President Luiz Inácio Lula da Silva will do when he does.

From the capital Brasília to trading desks in São Paulo, Lula is broadly considered the favourite to beat right-wing challenger Flávio Bolsonaro, whose campaign has been marred by a feud with his stepmother and links to a banker at the centre of a massive financial fraud probe.

Some inside the leftist incumbent’s administration are already eyeing positions in a new government. Influential centrist lawmakers are endorsing him. Betting markets give Lula better than 60 percent odds of re-election, while investors have begun selling off Brazilian assets amid worries about his willingness to tackle ballooning deficits and debt.

The world’s biggest presidential election of 2026 isn’t quite over yet. Despite the chaos of Bolsonaro’s campaign, he trailed by just three points in a poll released last week, a reminder that the voter fury that has fuelled a global wave of anti-incumbent sentiment could still hit highly-polarised Brazil in the October vote.

But the mood has shifted dramatically since last year, when Lula’s approval plunged to the lowest levels of his career and fed beliefs the 80-year-old was cruising toward defeat in what is likely his final race.

His frontrunner status now owes largely to lifelines from two political nemeses: Donald Trump and Flávio’s father, former President Jair Bolsonaro. The US leader slapped 50 percent tariffs on Brazilian goods last year in a bid to help the elder Bolsonaro dodge charges of plotting a coup after his 2022 loss, sparking a trade spat that boosted Lula’s approval. After his conviction, Jair Bolsonaro blessed his eldest son’s bid for the presidency over the objections of allies and investors alike.

Conservatives have surged to power in Argentina, Chile, Ecuador, Bolivia, Peru and Colombia, often with open support from the White House.

Brazil, however, is beginning to look more like Canada and Australia, where Trump’s targeting of ideological opponents helped lift them to election victories instead.

A win for Lula would disrupt South America’s steady swing to the right. It’d also deal a blow to Trump, keeping the region’s largest economy in the hands of a sceptic of his efforts to reassert Washington’s dominance over the Americas.

The Flávio effect

Lula has spent four years struggling to recapture the magic of his previous presidency, from 2003 to 2010, when the former trade unionist oversaw an economic boom, lifted millions out of poverty and left office with approval ratings above 80 percent. Unemployment is near historic lows, but he hasn’t delivered on a “beer and barbecue for all” pledge of cheaper food or convinced voters of his public security approach, even with violent crime rates falling.

Asked why Lula’s ahead in polls, one adviser answered simply: vBecause of Flávio Bolsonaro, whose inexperience, lack of political charisma and inability to command the narrative in what should be a favourable environment have been repeatedly exposed by the spotlight of a presidential bid.

Bolsonaro’s campaign didn’t respond to a request for comment.

The senator has for months struggled to overcome revelations that he sought money from the former owner of Banco Master SA, the collapsed lender at the centre of Brazil’s biggest-ever bank fraud probe, for a film about his father. He spent much of July in a feud with former first lady Michelle Bolsonaro. His failure to build coalitions with key centrist parties left him politically isolated and without the female running mate he’d wanted to bolster support with women – who favour Lula by nine points, pollster Quaest found in a recent survey.

His efforts to secure support from Trump, whom he met at the White House in May, quickly backfired: the US again levelled tariffs on Brazil two months later, despite Bolsonaro’s warnings that they’d provide an election gift to Lula.

Multiple Lula allies, who like others in this story requested anonymity to speak freely, characterized the series of setbacks for Bolsonaro’s campaign as almost too good to be true, acknowledging they’d have a steeper challenge against Tarcísio de Freitas, the São Paulo governor many investors wanted to run. 

One person close to Bolsonaro, meanwhile, described his decision-making as chaotic and perplexing, saying that he’s likely headed toward defeat without a campaign shake-up.

Lula has focused on Trump, sensing that the new levies give him a chance to position himself as a defender of Brazilian sovereignty. He’s accused the US of trying to interfere in Brazil’s election, and his government blocked two US State Department officials from visiting amid fears they planned to cast doubt on its voting system. 

That’s yet to materialise into the sort of polling gains Lula received last year. A campaign adviser, however, said that while Trump won’t likely sway many voters himself, he’s made it easier to tie various themes of Lula’s message together as he tries to reclaim the mantle of patriotism from the Brazilian right.

Lula has vulnerabilities of his own. In late July, the Supreme Court authorised federal authorities to investigate one of his sons for alleged corruption and influence-peddling, leading the president, who hasn’t been linked to the case, to call for a full probe and accountability. (His son denies wrongdoing.)

He’s sought to combat perceptions that he’s too old to lead Brazil, posting videos of himself working out to social media. A rap-inspired campaign jingle and his prioritisation of podcast appearances over traditional media interviews are part of a strategy to reach younger voters, according to political advisers.

The economy that’s long served as Lula’s calling card, meanwhile, is slowing despite a wave of stimulus efforts, weighed down by double-digit interest rates that are also exacerbating household indebtedness. Lula’s relief programs now appear to be losing potency with voters, two people close to the president said, pointing to their declining popularity in polls.

Economic legacy

Still, the prevailing sentiment is that Lula is on the verge of victory.

Last week, he won endorsement from Brazil’s lower house speaker and publicly smoothed over relations with its Senate chief, signals that the centrist leaders believe he’ll hold on. Brazilian assets posted some of the world’s biggest losses as traders woke up to the race. Prediction markets hardly budged, despite tightening polls.

The bet seems to be that Lula will bury his inexperienced opponent now that the official campaign period, which began Sunday, is underway, a forecast centrist party leader Gilberto Kassab recently delivered to São Paulo business leaders.

That’s amplified focus on Lula’s plans for a fourth term, especially with fiscal deficits nearing 10 percent of gross domestic product and debt levels above 80 percent.

Fund managers have long viewed Lula through different lenses. Many foreigners remember the outsized returns of his first presidency. Local investors tend to focus on what happened under his successor, Dilma Rousseff, whose administration cratered into Brazil’s deepest recession on record and left behind a massive gap in public finances.

Now they’re all wondering what type president Lula would be in a swan song: the sort who became an unlikely Wall Street darling in the 2000s by maintaining budget surpluses as he expanded social programmes; a more radical version who’d spend big even at the risk of a Rousseff-esque collapse; or something in between.

“I don’t see any evidence that Lula 4.0 would represent a deterioration versus Lula 3.0,” said Graham Stock, senior emerging-markets sovereign strategist at RBC BlueBay in London. “I would expect a Lula administration to maintain the current pace, which is not sufficient to stabilize the debt-to-GDP ratio but is a step in the right direction.”

Not even Lula’s closest advisers know. He’s focused on cementing his legacy as a transformational leader for the poor and working classes, and wants to ensure Brazil remains economically sustainable when he’s gone, people close to him say. His economic team acknowledges that would require fiscal adjustment, but also admits it will be difficult to reconcile with Lula’s view that public investment is crucial to growth.

In a Monday interview, Finance Minister Dario Durigan said the market's worries about Brazil's debt  are justified.

"Without dodging the issue: We need to address it," Durigan, who cast fiscal policy as the government's main tool to bring down interest rates, told Bloomberg News. 

Lula is sensitive to fluctuations in Brazil’s exchange rate, aware that sharp sell-offs of the real can exacerbate inflationary pressures. Some in his inner circle have attempted to convince him failure to take early action would cause investors to bail on Brazil, forcing him to respond, two advisers said.

Durigan, the main liaison between Lula and markets, has met with investors to discuss ideas like a stricter ceiling on spending growth under current fiscal rules.

But he declined to endorse specific structural measures in the interview, and has said Lula will only decide on detailed plans after the election.

With the campaign underway, multiple people close to the president said, Lula isn’t ready to make promises he may not be willing to keep.