President Luiz Inacio Lula da Silva’s emergency surgery has suddenly forced Brazilians to confront a difficult question: Is their 79-year-old leader fit for the task of commanding Latin America’s largest economy?

Lula’s doctors have said he is recovering and set to return to work by early next week.

But he was already facing a litany of issues, including rising inflation that poses a risk to his popularity and potential economic and political threats from Donald Trump’s return to the White House.

His challenges continued mounting during his hospitalization, as the central bank hiked interest rates by a full percentage point to 12.25% while pledging to take them two percentage points higher by March, reaching a level that will weigh on the economy on which Lula has staked his presidency.

That has left Brazil pondering the future as Lula’s age and health become major parts of the political discussion and attention turns toward the next presidential election in 2026. Here’s a look at three potential ways it may play out.

—Lula Presses On

Lula intends to finish his current term and seek reelection in 2026, according to a dozen people close to him who requested anonymity to discuss sensitive matters. Neither age nor health issues have shaken his conviction that he is destined to lead Brazil — someone who has overcome poverty, cancer and even a prison sentence in the past.

The idea that Lula will run again sent the currency tumbling Thursday, intensifying a selloff that is fueling inflation. The currency has weakened sharply after the government’s recently announced fiscal plan failed to allay fears about public spending and the size of Brazil’s deficits.

The worry now is that Lula will further concentrate decision-making power and grow even less willing to change, even with concerns still mounting: The real could fall to between 6.7 and 7 per dollar if fiscal policy, rather than monetary policy, starts driving inflation expectations, Morgan Stanley strategist Ioana Zamfir warned this week.

“Until the government understands that the issue is fiscal, there’s no doubt that the economy will feel it, whether through inflation or through a slowdown given very high interest rates and a drop in confidence,” said Solange Srour, head of Brazil macroeconomics at UBS Global Wealth Management.

Lula is planning to shuffle his Cabinet in the coming weeks in hopes of improving his government’s relations with Congress and its communications strategy, according to six of the people.

There may not be much he can do to win back those who are increasingly dubious of his fiscal approach. And for now, he may not have much incentive to try. Lula leads all of his potential 2026 challengers, according to a Quaest poll published this week. The economy, meanwhile, keeps beating expectations.

That recipe carries substantial risk well beyond markets. The combination of spending and the weakening currency are driving prices higher, while rising interest rates are set to hit growth. Lula’s right-wing opponents are already feeling emboldened by Trump’s victory, and are eager to seize on any decline in popularity to bolster their hopes of returning to power in two years.

—Lula Steps Down

Another potential scenario is that Lula steps down or is unable to complete his term for health reasons, and Vice President Geraldo Alckmin, who is considered more business-friendly, assumes power.

The former Sao Paulo governor is an experienced politician from the country’s centrist establishment, and would be more likely to take aggressive steps to improve the fiscal situation.

Brazilians are used to vice presidents taking over: Michel Temer assumed the presidency after Dilma Rousseff’s 2016 impeachment, and while he proved unpopular among Brazilians, he won investor favor after implementing labor and fiscal reforms that they had long sought.

—‘Biden 2.0’

Lula was facing a looming problem even before he went under the knife: A slight majority doesn’t want him to run in 2026, when he will turn 81, the Quaest poll showed.

That evokes the U.S. election, in which Joe Biden insisted on running until a poor debate performance led Democrats to force him out.

Brazil could be heading toward “a Biden 2.0 scenario,” in which Lula doesn’t step aside unless and until he becomes “an electoral liability,” said Christopher Garman, executive director for the Americas at Eurasia Group.

Finance Minister Fernando Haddad is considered the likeliest choice to replace him in that scenario, and the Quaest poll suggested that he would find himself in a strong position.

People familiar with Lula’s thinking, however, say he isn’t yet willing to pass the torch and hasn’t settled on Haddad if he does. That won’t likely change until much closer to the election, if history is a guide. In 2018, Lula refused to pass the baton to Haddad until it became completely clear he wouldn’t be eligible to run in that year’s election thanks to a corruption conviction.

Haddad is one of the more hawkish fiscal voices in Lula’s leftist Workers’ Party and won plaudits for his early efforts to shore up public accounts. But he suffered a blow from the reaction to the austerity package, and he has also lost each of his last two elections: the 2018 presidential race and a 2022 contest for Sao Paulo governor.

“Haddad has been a voice of reason,” said Greg Lesko, managing director for Deltec Asset Management LLC in New York. “But I do think the market is done with the Workers’ Party.”

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(With assistance from Felipe Saturnino, Josue Leonel and Martha Beck.)

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