Nassif joins the chorus against Minister Mantega.

247 - Blogger Luis Nassif, from Agência Dinheiro Vivo, joined the chorus of those criticizing Finance Minister Guido Mantega. Read below:

The Mantega Factor

Since the postwar period, economic policies in market economies have been guided by two distinct orientations (incidentally, following the same dichotomy that marked them in the 19th century): the so-called liberalism or economic orthodoxy, and Keynesianism, or heterodoxy.

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The first model was costly for the country. Implemented during Marcílio Marques Moreira's administration at the Ministry of Finance, it consisted of managing state expenses in a linear fashion (cutting spending without any concern for the consequences), an extraordinarily irresponsible monetary policy (the highest interest rates in the world, creating a monumental public debt), and a permanently unstable exchange rate. Each external crisis was met with a new fiscal tightening, halting projects halfway through, just to show off a cash surplus at the end of the year.

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It was only in 2008 that this orthodoxy was broken, when the global crisis forced the government to act. It then began to rely on Keynesian tools (from John Maynard Keynes, the English economist who reformed the world monetary system), according to which, when private demand is insufficient to reactivate the economy, public spending should lead the process.

Successful in 2008, the policy faltered from 2011 onwards, strengthening the discourse of the so-called "market advocates".

This week, in the newspaper "Valor," two of the most prominent representatives of the Keynesian school in Brazil – Luiz Fernando de Paula and André de Melo Modenesi – were quick to state, in an enlightening article, that the blame lies not with Keynes, but with Guido Mantega.

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Why, even with the reduction in the Selic rate and the improvement in the exchange rate, has the economy not recovered?, they ask.

The formula advocated by Keynes consists of providing predictability to the economy through government action and, by reducing volatility, stimulating private investment. "Keynes and Keynesian economists advocate transparency, not secrecy, as a condition for the success of economic policy," they explain.

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In the 2008 crisis, despite a widespread lack of coordination with Henrique Meirelles' Central Bank, the Finance Ministry achieved a rational, coordinated, and largely successful course of action – aided, in part, by sustained Chinese growth and high commodity prices.

In 2011, when he realized that the economy was faltering and the international situation was becoming more complicated, Mantega was slow to adopt counter-cyclical measures.

When he decided to act, he went in the wrong direction. He compromised the surplus with a disjointed series of tax breaks for consumption. Business owners shrank back, partly due to fears stemming from the unfolding international crisis. But Mantega played a central role in manipulating fiscal data and indiscriminately reducing taxes across sectors, without a strategic plan.

With the exchange rate lagging behind, the insistence on increasing credit resulted in an excessive increase in imports. When household debt reached its limit, domestic consumption began to falter.

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There will now be a long road of reconstruction, which involves restoring fiscal transparency, ending indiscriminate tax exemptions, and achieving success in the next rounds of public concessions.