Central Bank Ex-President: “Brazil Has Become a Pariah for International Investment”

RIO DE JANEIRO, BRAZIL – The Bolsonaro government’s environmental policy has turned Brazil into a pariah for international investment and could pose serious economic challenges for the country, says Pérsio Arida, a former president of Brazil’s Central Bank (BC). One of the signatories of the letter by former Finance Ministers and the Central Bank in defense of a “green” economic rebound, which will be released on July 14th, Arida notes that the President has pursued a “horrendous environmental policy” and in opposition to the world.

In an interview with the Estado de S.Paulo newspaper, Arida, who was one of the designers of the Real Plan, assesses the government’s response to the Covid-19 pandemic, discusses priorities for economic rebound, and addresses the recent criticism by the Minister of Economy, Paulo Guedes, of the inflation control program that completes 26 years in 2020: “Resentment and envy are subjects for a psychoanalyst’s couch.”

Read below some excerpts of the interview:

You signed a letter from former Central Bank presidents and finance ministers with alerts regarding the risk of the Bolsonaro government’s environmental policy. Has the issue increased for the economy?

My first article on the subject, called Thinking About the Destruction of Nature, is almost 40 years old. Ignoring the impact of global warming is practising Russian roulette over and over because we are part of nature. Unlike Covid-19, the process of environmental destruction is a catastrophe in slow motion.

The government’s stance has suddenly changed for the past year and a half. The burning and deforestation of the Amazon, along with the deconstruction of environmental controls, reveals a government contrary to the world and history. The Bolsonaro government has turned Brazil into a pariah for international investment.

The government insists on the argument that it is geopolitical pressure due to the commercial interests of agribusiness.

It is a wrong argument. Brazilian agribusiness does not need to deforest to be competitive. International organizations and more advanced countries are pressuring us because environmental preservation is a global concern. They are right, but we should demand them to respect the goals of pollutant gas emissions.

What are the risks of Brazil being isolated because of Bolsonaro’s environmental policy?

Corporate investment worldwide is increasingly driven by concern over the environment and social inequalities. It is a horrendous policy with regard to the environment and extremely damaging to the economy.

Will the Bolsonaro government react to the pressure with effective changes in current policy?

I expect nothing from this government. What can I say about a government that disrespects science, is incapable of coordinating a national health policy, incapable of choosing a Minister of Education who is worthy of the name, or praises a Secretary of Nazi Culture.

At the start of the pandemic, you wrote in an article that no society tolerates proceeding with economic life as if nothing were happening, while people are dying in the hospital waiting line. After four months, how do you assess the results of the path the government has taken in fighting the pandemic, on the grounds of preserving the economy?

The argument that a choice between the economy and health is required is yet another wrong assumption. Whoever is able to control the epidemic sooner and with greater determination will do better from the economic perspective too.

How do you assess Minister Paulo Guedes’ response in tackling the impact of the pandemic on the economy?

We have greatly evolved since the Minister said that with R$5 billion the health issue would be solved. But its implementation was flawed. A good part of the health fund didn’t come off paper. Business support programs didn’t work or fell short of what was required. In the case of individuals, the R$600 aid was poorly focused.

In a reincarnation of Dilma, the government granted the Caixa (Federal Savings Bank) the monopoly to distribute the aid. Obviously, to take political ownership of the R$600, but also for the Caixa to have a broad digital registry of customers and become a little more competitive. Unbelievable. In contrast, the Central Bank was very quick and effective in increasing liquidity in the economy. And it is efficiently addressing the agenda of reducing the banking spread and increasing competition in the financial sector.

The pressure for changes in the spending cap has grown. Should it change in the post-covid period to help the rebound?

The spending cap should be maintained after the epidemic. What we should not do is raise taxes. The tax burden is already too high and our history shows that tax raises ultimately make room for a new round of spending. Since the 1990s, the tax burden has risen from 23 to 33 percent of GDP and the deficit is higher now than it was before.

What is the priority on the rebound agenda?

One thing is the cyclical rebound that always occurs, partly because there is no recession that lasts forever; another thing is structural change in the growth level. To emerge in a sustained way from the one to two percent per year level, we have to open the economy, implement an administrative reform to render the public machine efficient, privatize effectively, pass the tax reform, and improve learning in public schools.

None of this has progressed under the Bolsonaro government. With the end of the demographic bonus, we have to increase productivity in order to grow.

What do you think of the ‘Renda Brasil’ (Brazil Income) that the government intends to implement to replace the ‘Bolsa Família’ (Family Grant)?

One of the few positive legacies of the epidemic was to include the issue of universal minimum income in the political agenda. There are currently great proposals ready. Unfortunately there is no way to spend more than we have already spent, but unifying and focusing better on several of the existing social programs is a significant step to reduce poverty. The risk is the political appropriation of the minimum income for electoral purposes.

Minister Paulo Guedes criticized the Real Plan when he said that if it had been that remarkable, the PSDB would not have lost four elections. As one of the creators of the Plan, how did you find this statement?

Resentment and envy are subjects for a psychoanalyst’s couch. The plan was an extraordinary success. President Fernando Henrique was elected twice in the first round. In the wake of the plan, the foundations of modern Brazil were approved: Fiscal Responsibility Law and the, macroeconomic tripod of setting up of regulatory bodies, major privatizations, the stretching of the Treasury debt.

The lesson left is that when there is political leadership capable of uniting the country around a vision of the future, capable of creating a solid congressional base and building a good team, Brazil can be changed.

Source: O Estado de S. Paulo