Former Brazilian Finance Minister and former Central Bank President Henrique Meirelles gave a live interview this Sunday to Jornal da Manhã, from Jovem Pan News.
He commented on the latest statements by President Luiz Inácio Lula da Silva (PT) against the Central Bank’s autonomy, stating that it is normal for the government to be uncomfortable at this time, but also discrediting significant changes.
Questioned about the possibility of President Lula da Silva changing the current way of managing the Central Bank, Meirelles said he finds it unlikely that significant changes will occur.
“I think it is very unlikely that the Central Bank will lose its autonomy. The president would have to send a bill or a presidential message to Congress to ask for the repeal of the law that gives independence to the Central Bank, resuming the previous situation. This would generate great instability in the markets. We would certainly have increased interest rates as there would be uncertainty regarding the bank’s action and the conduct of monetary policy. We would have increased interest rates and inflation,” he said.
“It is normal that the president, in this phase he is taking over, wanting to boost the economy, with fiscal expansion, he may be a little uncomfortable with the Central Bank making a policy of controlling interest rates and inflation, but it is a technical issue”, he added.
“It is a classic issue that politicians do not like the Central Bank to restrict economic activity to control inflation. But experience shows that this is what really benefits the country, the economy, job creation in the longer term”, he said.
“High and out-of-control inflation doesn’t help anyone. Therefore, this is very important, although in the short term it bothers the Executive, it is normal, including the president himself, but it is very important that the Central Bank plays its role, controls inflation, so that Brazil can grow with balance and generate jobs and income”, continued Meirelles.
On controlling expenses and balancing the Brazilian economy, the former minister commented on the need to understand the market and how it works, ensuring that the government acts in favor of the population.
“The market has no opinion, it is nervous or calm, the market is not a person. The market is all economic agents in Brazil. There are 17 million companies in the country. Each company, the baker in a country town, when he thinks the economy is going to grow, he will increase the sale of bread, he buys more wheat, hires an employee, if he thinks sales are going to drop, he does the opposite, he buys less and, eventually, leaves an employee. That’s market”, he said.
“The market also has great managers, who operate in Faria Lima, this is part, perhaps the most visible part. It makes no sense to wait for the baker or the great manager to make the wrong decision, incurring financial losses, just to act politically. The market does not act politically, the market acts according to the management of each business”, he explained.
Regarding the possibility of a global recession, Meirelles stated that Brazil should be less affected as it is an exporter, fundamentally, of agricultural products and food: “This is less affected. Squeeze the economy a little. But we’re not going to go into a recession because of that,” he declared.
With information from Jovem Pan