Presidential Candidate Caiado Proposes Hard-Line Fiscal Cap, Targets Congressional Amendments to Lower Brazil Interest Rates

Presidential candidate Ronaldo Caiado of the Social Democratic Party (PSD) unveiled a hard-line fiscal reform plan this week, proposing a Constitutional Amendment that would dramatically limit the growth of federal spending in a direct bid to cut Brazil’s persistently high interest rates. The proposal, one of the most aggressive fiscal platforms of the current election cycle, centers on capping the annual growth of public spending to just 50% of the growth rate of the country’s Gross Domestic Product (GDP) for a period of 24 months. The explicit goal is to immediately restore investor confidence and force a reduction in the benchmark Selic rate, which currently stands at 13.75% as of the last meeting of the Central Bank’s Monetary Policy Committee (Copom).

For an international audience, Caiado is the current Governor of Goiás, a large, prosperous state in the center-west of Brazil, and his campaign is premised on a reputation for fiscal conservatism and security policy. The core of his economic argument is that Brazil's high public debt, currently around 82.5% of GDP and trending higher, is the fundamental cause of the country's expensive credit, not the Central Bank's policy alone. Caiado's plan, presented as a temporary "shock" measure lasting two to three years, is a direct challenge to the current government's fiscal framework, which he and his team argue has failed to contain spending.

The proposal includes a politically volatile promise to eliminate 100% of the mandatory congressional amendments, known as emendas impositivas. These amendments are funds that Congress members are legally entitled to allocate to projects in their home districts and have become a primary mechanism for the Executive Branch to negotiate political support. By pledging to cut them entirely, Caiado is seeking to dismantle a key tool of the traditional political horse-trading that governs Brasilia, arguing that this practice is a major source of fiscal leakage and a symbol of institutional disorder. The move signals a willingness to take on the political establishment, betting that voters' desire for fiscal solvency outweighs the power of entrenched congressional interests.

The high interest rate environment, which Caiado's plan targets, is a central concern for Brazilian consumers and businesses, strangling new investment and slowing overall economic growth. Caiado’s team believes the Constitutional Amendment Proposal (PEC), once approved by Congress, would create the budget space necessary to achieve a primary surplus target of 1.5% of GDP. What happens next depends on the political viability of such a radical measure: the current system, with its mandatory spending and strong congressional blocs, is designed to make sweeping fiscal reform exceptionally difficult, requiring three-fifths approval in both houses of the National Congress.

What it touches The proposal represents a stark policy divergence from the current administration and a clear alternative for economic policy, which directly impacts market expectations. Should Caiado's hard-line fiscal approach gain traction, it could lead to a repricing of interest rate futures, a potential strengthening of the Brazilian Real (BRL) against the U.S. Dollar (USD), and a positive reaction on the B3 stock exchange, as markets tend to reward credible plans to reduce public debt.