Brazil follows Argentina and Paraguay in abolishing its sovereign wealth fund.
According to Numa Mazat, a professor at the Institute of Economics at UFRJ (Federal University of Rio de Janeiro), Brazil has aligned itself with international economic orthodoxy and is following in the footsteps of Argentina and Paraguay by abolishing the Sovereign Wealth Fund; the provisional measure was signed by Michel Temer and the resources will be used to pay off the Federal Public Debt; "The abolition of the Sovereign Wealth Fund signifies the abandonment of long-term economic development strategies and industrial policy," says Mazat.
Sputnik - According to an economist, Brazil is aligning itself with international economic orthodoxy and following in the footsteps of Argentina and Paraguay by abolishing its Sovereign Wealth Fund.
Brazil's Sovereign Fund was dissolved by provisional measure by President Michel Temer this Monday (21). The measure was published on Tuesday in the Official Gazette of the Union and the resources will be used to pay off the Federal Public Debt.
According to Numa Mazat, a professor at the Institute of Economics at UFRJ (Federal University of Rio de Janeiro), the measure is part of a series of changes in economic policy and in the way the development process is viewed. This process had already begun in the last year of Dilma's government, but was in fact taken up by Michel Temer.
"The Sovereign Wealth Fund is often used to provide strategic guidance to the national economy, mainly through the financing of sectors seen as strategic for economic development in peripheral countries," explained the source to the Sputnik Brasil news agency.
He cited sovereign wealth funds as an example, stating that they are used in Russia, China, and other emerging Asian countries as a way to direct resources to sectors that can provide greater development of productive forces or to sectors stunted by technological delays or lack of financing.
"In the case of Brazil, the extinction of the Sovereign Wealth Fund means abandoning long-term economic development strategies and industrial policy, especially considering the productive internationalization of certain sectors," stated the economist.
According to the expert, the main problem with the extinction is the use given to the resources. In an attempt to cover the Union's deficit, the Fund will be integrated into the budget.
"In other words, a long-term structural fund will be used for a very short-term task. This shows the fragility of the Brazilian economy."
Symbolic importance
On the other hand, the professor pointed out, the Brazilian Sovereign Wealth Fund never had significant importance from an economic point of view. The initial value of R$ 14 billion, which now totals R$ 26,5 billion, is very low compared to the Chinese fund, with more than US$ 2 trillion, or the Russian fund, with more than US$ 100 billion. "The fund's role was more symbolic," Mazat stated.
The fund was designed to fulfill a certain role in the economic development process. In addition, there is its macroeconomic use, in the form of a safeguard against potential speculative attacks, as is currently the case in Argentina. These funds supplement international reserves, but in Brazil this institution has never fulfilled this role.
"From a symbolic point of view, [extinction] means in practice the abandonment of more assertive policies at the macroeconomic level and at the level of economic development. Brazil is thus trying to conform today to an international economic orthodoxy, following in the footsteps of Argentina and other Latin American countries, such as Paraguay or other countries with similar political evolutions," explained the economist.
"Brazil is symbolically abandoning part of its sovereignty from an economic standpoint and from the standpoint of the development process," he concluded.
As a provisional measure, the extinction of the Sovereign Fund takes effect immediately, but it must still be analyzed by the National Congress.