Laura Carvalho: Brazilian economy is going against the global trend.
With rising interest rates and a stagnation of the State's capacity to invest and promote growth, Temer is making calculations that, according to economist Laura Carvalho, have not worked in any country; report by Helder Lima, on Rede Brasil Atual.
By Helder Lima, from Current Brazil Network
The signals from Michel Temer's interim government, from the very first minutes, pointed in the opposite direction of job and income recovery. "The government is now more concerned with ensuring a positive market perception with the measures they call long-term reforms," says economist and USP professor Laura Carvalho, for whom the absence of a growth agenda shows the government's commitment to adopting policies to reduce the size of the state in the economy. Among the long-term measures she refers to are the pension reform and Constitutional Amendment Proposal (PEC) 241, which sets a spending ceiling for the public sector for a period of 20 years, based on the previous year's inflation.
During his first 100 days as interim president, Temer managed to get Congress to approve, at the end of May, a revision of the fiscal target, admitting a primary deficit of up to R$ 170,5 billion for this year, while the target left by Dilma was a surplus of R$ 30 billion. This, in itself, according to Laura, reflects a change in the posture of the media and the financial market in relation to the government, which was previously criticized for having broken, with the crisis, the historical series of surpluses in the primary accounts.
This widening deficit allows for some disconcerting maneuvers. One of them is increasing interest expenses in the midst of a recession and falling tax revenue. By maintaining the annual base rate at 14,25%, the real gain for speculative capital that enriches itself with government bonds increases by nearly 50%. If a year ago it was between 3 and 4 percentage points above inflation, this premium is now between 5 and 6 points.
Perhaps that is why the so-called "market agents" do not condemn the larger deficit compared to the result estimated by Dilma. "To some extent, it is true that we will not be talking about such a strong recession (this yearas well as that of 2015, which was largely caused by that adjustment (initiated last year by Joaquim Levy"This is demanded and required by financial market analysts and economists who now, all of a sudden, seem to be much more at ease with the fiscal situation," criticizes the economist.
Temer approved and signed into law the appointments law for state-owned companies, inspired by the ideology of criminalizing politics. After threatening to reduce spending, he increased the Bolsa Família program by 12,5%, compared to the 9% that Dilma had indicated based on the projected budget; and he floated ideas in the press for pension reform, advocating greater convergence between the systems for men and women, rural and urban workers, and proposing the adoption of a minimum retirement age.
Also within the scope of the 100 days is the renegotiation of state debt, approved in the Chamber of Deputies but not without a retreat by the government, which intended with the project to freeze the salaries of public servants for two years; and the importance given to a project by Senator José Serra, the current interim Minister of Foreign Affairs, to securitize (sell) the receivable portion of the public debt, which would be transferred to banks at a 50% discount – according to the Minister of Finance, Henrique Meirelles, a way for the government to provide liquidity to this debt. But which at the same time creates financial movements favorable to the banks.
The most serious aspect of this story, however, is Constitutional Amendment Proposal (PEC) 241, which alters the trajectory of public investments in recent years and eliminates real increases in social assistance areas that characterized the Lula and Dilma administrations. Bold and unparalleled worldwide, the PEC even goes so far as to break constitutional earmarking, such as in health and education, suggesting a "rigid" future for the economy and setbacks in social programs that will be unable to keep pace with the growing demands of the population.
“PEC 241 makes it impossible to implement a public investment agenda in infrastructure, which was one of the pillars that, during Lula's government, allowed the Brazilian economy to recover much faster than other countries in 2009 (the year following the explosion of the global crisis), but it was also one of the pillars that boosted the domestic market and led to the highest growth rates of recent decades,” says Laura Carvalho.
The professor recalls that during Dilma's first term, there was already a stance of abandoning the expansion of public investments. "There was a focus on tax breaks and measures to stimulate the private sector that did not achieve the desired results." But now, with the proposed constitutional amendment, according to the professor, "you practically put on paper the end of this pillar of development, which is curious because it goes against the global trend. Currently, the Democratic platform in the US elections seeks to revive a large-scale public investment program, focused on infrastructure, financed by increased taxation on the wealthiest. This is something we now see in Hillary Clinton's platform, praised by conservative sectors in Brazil, but here it's out of the question, and what is being proposed is this proposed amendment," she states.
Contradictory period
According to Laura Carvalho, Temer's first 100 days in office "are contradictory in the sense that, while he is signaling to please the market with long-term measures, such as this constitutional amendment and the pension reform, on the other hand, to guarantee his stability and also to stop deepening the recession, he needed to approve a much larger fiscal deficit than what was at stake, both for this year and for next year. However, the market seems to have listened tolerantly to these contradictory signals, even though there is increasing pressure, including in Central Bank minutes, for the actual approval of these long-term measures."
“There are economists in the government's support camp who are already starting to worry about the approval of these measures, and they are using all their cards to achieve this, because in the end it's the only victory they have, but I don't see any agenda; the issue of employment and growth is something that doesn't come up, or it only comes up as if the approval of these measures would magically stimulate private investment, something we've never seen in any country in the world,” he stated.
“Furthermore, there is a misconception that the stock market, the dollar, and assets are appreciating in Brazil, which would show the success of the coup,” she points out. According to her, these assets are appreciating in all emerging countries. “It’s coming from an international financial flow, it has nothing to do with the coup, and even if it did, it wouldn’t necessarily imply an improvement for the real economy.”