Economy, government and trust

A country loses its way when its government loses the ability to fulfill its most important role: to increase hope and reduce uncertainty. To govern is to increase the confidence of people and businesses.

It's difficult to find someone who disagrees with two facts about the current situation in Brazil:

a) The economy is progressively losing momentum; and b) there are no visible actions to effectively recover our growth capacity, especially in a more challenging external environment.

More than ever, we need: a) a correct diagnosis of our central problem; and b) the ability to focus our actions on what is truly essential and could significantly and sustainably restore our economic growth.

But first, a brief introductory comment.

Keynes was clear: relevant economic decisions, those relating to private investment, are made in a context of uncertainty, something incalculable, like risk. The calculations necessary for investment decisions are based on the future behavior of various variables, relying on a judgment that is essentially speculative and uncertain. Ultimately, even considering various analyses and calculations, the final investment decision is an act of courage undertaken under the shadow of uncertainty.

Therefore, it is always necessary to keep in mind what governments do to increase or decrease the confidence and courage of productive investors. With this in mind, let's return to Brazil.

Over the past decade, Brazil has benefited from the convergence of two factors.

Growth based on consumption, imports, and abundant credit has run its course, despite the government's insistence on inadequate remedies.

After more than twenty years of reforms, sacrifices, and efforts, at the beginning of this millennium Brazil began to enjoy the advantages of a more modern and stable economy. Fortunately, at that same time there was a double international inflection point: the demand for commodities grew significantly due to the change in the level of international purchases, especially from China, and a significant increase in international liquidity with a substantial reduction in international interest rates.

We had a golden opportunity in our hands.

At that time there were two possibilities: to follow the patient path of the ants, using all these advantages and special possibilities to make a qualitative leap in the Brazilian competitive base, transforming the country into a special and privileged center of international creation and production; or to follow the path of the cicadas, transforming Brazil into a paradise of eager consumers and tourists benefiting from a clearly unrealistic exchange rate, from significant public current spending instead of investments, and finally, from abundant credit, also anchored in tax breaks.

The decision made is known to everyone.

But the time of the cicadas is over. Growth based on the quartet of consumption/imports/abundant credit and current government spending has long since run its course, despite the government's long and inexplicable insistence on distributing inappropriate remedies. The external scenario has reversed. China is expected to grow much less, with the possibility of growth below 5% soon not being ruled out, and international interest rates in the medium term will likely return to their historical averages.

Internally, serious analyses by experts have clearly shown that the fiscal situation is far more delicate than the alchemists of creative government accounting want us to believe. Finally, consumers in general are belatedly beginning to realize that their disposable income, already eroded by inflation, is starting to feel the significant weight of their newly acquired financial commitments.

The diagnosis at this point is clear. If we intend to recover growth in a sustainable way, we need to focus all our attention on correctly and effectively stimulating private investment, especially in sectors where there are evident bottlenecks, such as, for example, the logistics system as a whole.

To achieve this, it is necessary to completely forget about the wrong stimuli that everyone has already realized do not work and that brought quick and fleeting wealth to a select few.

There is only one consistent and sustainable path: to make it clear to everyone, Brazilians and foreigners alike, that Brazil is committed to creating the conditions for the country to be a privileged space for creation and production on a competitive basis.

What does this mean?

Brazil needs to declare its desire and resolutely and permanently build institutions, systems, and incentives that increase the hope of creators and producers that they will receive a full return on their creations and investments, with no surprises or governmental zigzags in the future.

Productive investment could grow significantly when creators/investors realize they can profit from their creations because there is a set of institutions that induce a general reduction in costs (including, but not limited to, those related to the components of what is called the "Brazil cost," which far exceeds that of other emerging countries) and because the government is clear that private revenues should not be arbitrarily limited by enacting any form of direct or indirect price restrictions.

This will only be achieved when there is conviction on the part of everyone, including governments, that what guarantees the effective reduction of costs is competition and the creativity of the largest possible number of applicants for products and services in all sectors, which is only possible when the pursuit of profit is not subject to any kind of government censorship at any time.