Brazil's Lula unveils $200 billion infrastructure plan as sceptics caution about spending spree

Brazilian President Luiz Inácio Lula da Silva on Friday unveiled a plan to spend 1 trillion reais (nearly $200 billion) on infrastructure, energy and transportation over the next four years, part of a larger effort to boost economic growth and employment in Latin America's largest nation.

The Growth Acceleration Program, known under its Portuguese acronym PAC, has been met with scepticism from analysts and investors, who say previous, similarly ambitious programmes have included projects that never saw the light of day and opened the door to vast corruption schemes.

Funding included in this year's PAC is expected to go towards infrastructure projects including new highways and ports as well as energy efficiency and urbanisation programmes in slums.

"More than a public investment portfolio, the new PAC is a collective compromise (...) born out of many conversations with governors and mayors," Lula said at an event in Rio de Janeiro attended by government ministers, state governors and representatives of the private sector. This will ensure that the projects chosen "will reflect the specific needs of each of the country's regions," he added.

The government has not said how it will fund the nearly $200 billion but will have to do so when it sends its final proposed budget to Congress by Aug 31. The plan then needs to be approved by Congress and included in the annual budget in December.

Lula launched the first PAC in 2007, soon after assuming office for a second presidential term. It included a package of investments in infrastructure, popular housing and highways, as well as easier access to bank loans.

The new plan is being praised by members of Lula's administration, who say public investment is needed to boost economic growth.

Finance Minister Fernando Haddad this week called the last ten years in Brazil a "tragic decade" pointing at the country's sluggish growth. "We cannot continue to grow 1 per cent a year on average, which is what has been happening in Brazil for a decade," Haddad said on a podcast.

"It's a very ambitious programme," said Gilberto Braga, a finance professor at Ibmec university in Rio de Janeiro. "It has a lot to do with the political objectives of the government, to create a legacy of (Lula's) third term as one of great works, great achievements, a greater Brazil."

Investors in Brazil have historically been sceptical at the leftist Workers' Party's commitment to fiscal restraint. In addition, critics say too many projects included in previous PACs were either abandoned or left unfinished. In their view, public money has too often been spent in the wrong areas or wasted on poorly-executed projects.

"These are very robust numbers for a country that does not have good governance when it comes to the use of public resources," Zeina Latif, an economist with consulting firm Gibraltar, said in a phone interview. "In Brazil we have a bad track record of investment quality."

Government officials say that unfinished infrastructure projects will be a priority, mainly around slums, which will receive the bulk of the investment under PAC. This includes the launch of new, affordable housing programs and investments in sewage and flood prevention around slums.

The second largest investment involves energy efficiency and energy transition. But while Lula and other government officials have said the country will boost investment in renewable energy and the use of natural resources, oil state-controlled Petrobras will receive the bulk of energy-related investments.

Petrobras President Jean Paul Prates said Friday at the event that the company is working on energy transition in order to produce biodiesel, even when it's embroiled in a dispute with an environmental organ that refused to grant it a license for a controversial offshore oil drilling project near the mouth of the Amazon river.

Petrobras was also among the Brazilian companies behind the 2014 corruption scandal known as Operation Car Wash, which revealed a sprawling graft scheme involving top businessmen and high-ranking politicians.

Brazil officials estimate that including private sector-led initiatives and private-public partnerships total investments over the next four years could reach 1.7 trillion reais (around $350 billion) — a figure that is raising eyebrows among investors and analysts.