By Marcela Ayres
BRASILIA, Sept 17 (Reuters) - Brazil's leftist government on Thursday announced a 15% increase in benefits under the country's flagship welfare program and signaled a new initiative targeting indebted households ahead of next month's general election.
The measures are aimed at boosting disposable income among Brazilians, whose finances have been strained by record levels of debt servicing, a vulnerability widely seen as weighing on President Luiz Inacio Lula da Silva's prospects of winning a fourth non-consecutive term.
Opinion polls show the leftist leader running neck-and-neck with his main challenger, right-wing Senator Flavio Bolsonaro, the son of former President Jair Bolsonaro, in a potential runoff election.
Brazilian assets came under pressure after the announcements, with the benchmark Bovespa stock index falling more than 1% before trimming losses to trade down about 0.7%. The Brazilian real initially weakened 0.4% against the US dollar but later recovered to trade little changed by midday.
Speaking alongside Lula at the presidential palace, Planning Minister Bruno Moretti said the move to boost the "Bolsa Familia" welfare program, a cornerstone of the social agenda of Lula's Workers' Party, would cost the government 5.8 billion reais ($1.13 billion) in 2026 and 22 billion reais in 2027.
The minimum monthly benefit will rise to 691 reais ($134.02) next month, from 600 reais.
Households with a per-capita monthly income of up to 218 reais are eligible for the program, which currently provides benefits to millions of low-income families across Latin America's largest economy.
Finance Minister Dario Durigan said the additional spending would be absorbed within existing budget allocations and would not represent a new expenditure, "so that we maintain our fiscal targets and fiscal results trajectory for the country."
He added that spending tied to the program will amount to around 1.25% of gross domestic product in 2027 after the adjustment.
The increase will be implemented by presidential decree. Moretti and Durigan said legislation governing the program allows benefits to be adjusted to preserve beneficiaries' purchasing power.
"Inflation since the relaunch of the program through August stands at 15.04%," Moretti said.
NEW DEBT-RELIEF INITIATIVE
In an interview published on Thursday by Extra, a Brazilian newspaper, Durigan also signaled that the government is designing a new program that will be aimed at heavily indebted consumers and feature in Lula's presidential campaign.
Under the proposal being studied, the government could purchase debt at steep discounts to allow borrowers to clear overdue obligations, particularly older debts that creditors have largely written off, he said.
Officials are still assessing which categories of debt would be eligible, but the focus would be on the oldest liabilities, Durigan said.
"It is about making it possible for people who today have more jobs, more income and greater access to quality services to start over," he was quoted as saying.
The Finance Ministry confirmed to Reuters that the debt-relief initiative is being designed.
It would effectively represent another debt-relief measure only months after Lula relaunched "Desenrola," a broad government-backed debt renegotiation program that uses state guarantees to help reduce borrowing costs. It is now targeting borrowers who have remained current on their debts.
Critics say the debt-relief initiatives do not tackle the structural causes of indebtedness and could create moral hazard by encouraging consumers to expect future government-backed debt renegotiation programs.
Delinquency rates in Brazil have continued to climb to record levels as consumers grapple with high borrowing costs in an environment of elevated interest rates.
Investors have also demanded hefty risk premiums to finance the government, reflecting persistent concerns about its commitment to containing public spending growth.
($1 = 5.1560 reais)
(Reporting by Marcela Ayres; Editing by Gabriel Araujo and Paul Simao)
