Paulo Guedes and international reserves

The gravity of the international crisis caused by the emergence of the COVID-19 pandemic is becoming almost universally acknowledged. Even far-right political leaders on the international stage, such as Donald Trump of the United States and Boris Johnson of England, have changed their strategy and have begun to recognize the need to give this crisis the serious treatment it deserves.

In addition to incorporating the narrative offered by experts in health and epidemiological medicine, conservatives on the global stage have been forced to transform their views regarding the importance of the State and public policies for success in the struggle that Humanity is waging in situations such as the one we are currently experiencing.

In concrete terms, this meant that the disease caused by the new coronavirus ceased to be presented as just another "little flu," and the guidelines of the World Health Organization and other authorities on the subject began to be followed by national governments. On the other hand, the depth of the crisis also required a change in the approach to economic policy alternatives. The need to keep the economy minimally active implied the search for strategies opposed to what neoliberal conservatism had always advocated.

The State has been called back to the main stage. Yes, that entity so detested by global financial elites has been called upon to ensure that the resources needed to combat the pandemic are available to everyone – businesses and citizens alike. In the jargon of "economese," Keynesianism has returned to the forefront as the only mechanism capable of sustaining aggregate demand and preventing the disaster from being even greater than it already is and will be.

At this moment, almost all policymakers within the establishment themselves have realized that public spending is essential to saving lives and to minimizing the drastic effects that the various levels of isolation and confinement will certainly have on the international economy.

However, in this sad country called Brazil, unfortunately things did not happen that way. Bolsonaro continues to be accompanied only by leaders of countries like Turkmenistan, Belarus, and Nicaragua in his genocidal attempt to deny the evidence of reality and science itself. By opposing the strategies recommended by 11 out of 10 public health experts in the world, as well as the suggestions of his own Minister of Health, the president only aggravates the future consequences of the crisis – in terms of lives that will not be saved and the obstacles placed before the recovery of the economy in the future.

This misguided intention to (not) confront the pandemic finds an echo and acceptance among his super-minister of the Economy. This criminal denialism of the boss sounds like music to the ears of the financier implanted with superpowers within the Esplanade of Ministries. This is all the sorcerer's apprentice would like to receive as guidance. After all, if it's all just nonsense exaggerated by the press, the government doesn't really have much to worry about. The disease will pass soon. And that's the end of it.

In reality, this is a tragic application of the fable of the equilibrium of free supply and demand forces to the context of the pandemic. The government doesn't need to do anything, as time will take care of resolving this momentary difficulty. "The strongest will survive and the weakest will perish. What a pity! But that is the sad natural law of things." Madness! There were many technocrats who came up with economic and financial calculations, trying to demonstrate that the cost of saving lives would be much greater than letting things run their course.

But reality often screams louder, and in our lands, a portion of the elites and a fraction of the ruling classes have realized the exaggeration of such a stance. Bolsonaro and his team find themselves increasingly isolated politically. In negotiations with parliamentarians, governors, and mayors, the demands for the release of funds are growing stronger. The government is being forced to concede, as happened with the amounts of emergency aid. Paulo Guedes arrived with the "non-negotiable" ceiling of R$ 200, and then Congress approved R$ 600 for citizens without access to the mechanisms of the formal labor market.

Upon realizing that increased spending is unavoidable in such a context, the "old Chicago boy" begins to look with concern at his dogmas of monetarist orthodoxy. After all, he has always had one eye on the sacrosanct fiscal balance, to be achieved at any cost. And now he realizes that, once again, for the second consecutive year, the budget coordinated by his team will be in deficit.

The problem is that, to deal with this situation, Paulo Guedes is threatening to resort to yet another criminal strategy. He knows that the National Treasury has surplus resources of R$ 1,3 trillion in its Single Account with the Central Bank. He also knows that he can use debt mechanisms to meet the emergency needs of expenses associated with combating COVID-19.

But the problem is that he has the gene of elite finance in his DNA. Just as it took weeks to get the R$600 "fortune" to the most needy, he immediately released more than a trillion reais to banks and other financial institutions so they wouldn't suffer too much – oh, poor things! – during the crisis. 

So instead of resorting to the known mechanisms of fiscal policy, he comes up with the fantastical idea of ​​selling our international reserves to obtain resources to face the crisis. This is yet another unnecessary trick that aims only to reduce Brazil's sovereignty in an international scenario of a very serious crisis and great uncertainty. In fact, Guedes' team has been implementing this criminal policy for quite some time now.

Over the last decade, Brazil's strong export performance has allowed it to accumulate positive balances in international reserves in dollars and other foreign currency assets. This is a guarantee that the country can count on to weather periods of greater turbulence in the external sector, such as the one we are experiencing now. In January 2003, this value was US$39 billion. In 2007 it reached US$100 billion. In 2008 it rose to US$200 billion. In 2011 it reached the US$300 billion mark. It is true that this movement was a result of the favorable external sector, but also of the intention to prevent these resources from leaving our accounts.

In August 2019, the stock of our reserves, as presented by the Central Bank, was US$390 billion. And then Paulo Guedes's instruction was to use them to contain speculative threats in the exchange rate market. Having always operated on the other side of the counter, as a banker operating in the financial market, he knew very well what his former colleagues at the counter wanted.

What we saw was a scandalous reduction in our reserves. In just a few months, they were reduced to the current US$340 billion. That is, 50 billion dollars were literally reduced to dust in opaque operations carried out by the Central Bank in a highly selective market, where only large conglomerates operate. Thus, we run the risk of returning to the levels that existed in 2010.

As if these losses from speculation in the foreign exchange market weren't enough, Guedes is now reaffirming everywhere that he intends to continue selling international reserves at an accelerated pace to meet the government's spending needs.

Brazil does not need this operation to obtain resources to mitigate the damage caused by the pandemic crisis. Guedes' intention only exposes, with all due evidence, his unpreparedness for the position and his absolute lack of concern and responsibility for the future of our country. At every crossroads he encounters, his choice is to serve the interests of the banking sector and destroy the national economy. 

A Brazil without international reserves would have far less sovereignty to face the current difficulties. It is up to democratic forces and the National Congress to prevent this further crime against our sovereignty.