In a seminar that brought together Geraldo Alckmin, Aloizio Mercadante and the Nobel Prize Joseph Stiglitz, the president of Fiesp, Josué Gomes, and the economist André Lara Resende also questioned the maintenance of the Selic rate at 13.75% per annum from part of the Central Bank
RIO – On the eve of the meeting of Monetary Policy Committee (Copom) From Central Bank (CB)the high base interest rate (Selic)currently at 13.75% per annum, this Monday the 20th, it was subjected to strong criticism, including by government officials, during a seminar promoted by the National Bank for Economic and Social Development (BNDES)chaired by the former minister Alozio Mercadanteinto the river.
the vice president Gerald Alckmin pulled the line of criticism. Economists, including Nobel laureate Joseph Stiglitzand the president of the Federation of Industries of the State of São Paulo (Fiesp), Joshua Gomes da Silvathey have in chorus.
The Selic rate has been stuck at 13.75% annually since August. At the end of the two-day meeting, on Wednesday 22 Copom will define the Selic level which will be valid for the following 40 days. The BC has been severely criticized by members of the government, including the president Luiz Inácio Lula da Silva.
“We believe in common sense. There is no demand-driven inflation. On the contrary, we need to stimulate the economy. The whole world is going through a more difficult time. Today most of the countries in the world have negative interest rates. As he said the minister said well (from the farm, Fernando) Haddad has a lot of fat. (I swear) 8% above inflation ends up holding back consumption, delaying investment and burdening the taxman. There’s nothing worse for the IRS than that, because half the debt is (indexed to) Selico. We believe in the common sense, that we will have an interest rate cut,” Alckmin said, after attending the opening of the economic development seminar, at the BNDES headquarters, in Rio.
The president of Fiesp, who also attended the opening of the event, classified the current level of the base rate as “pornographic”. “The current interest rate in Brazil is inconceivable,” Josué said, refuting that high interest rates are a consequence of public finance imbalances. For the entrepreneur, the Brazilian economy no longer has “external restrictions, but we have created a new internal restriction”. “If we don’t lower interest rates, industrial policy will be useless,” he added.
American economist Joseph Stiglitz agreed with the businessman’s assessment. According to the professor at Columbia University, New York, and Nobel laureate in 2001, the high inflation that has spread around the world has absorbed the supply problems resulting from the pandemic and the increase in input prices linked to the war in Ukraine, started a year ago. For this reason, it should not be fought with cooling demand through high interest rates.
“Another major source of inflation is the oil and gas and food industries. And another major source of inflation has been housing. But recent interest rates aren’t solving any of those problems,” said Stiglitz , in his report to the seminar, calling Brazil’s assessment of base interest rates “shocking” and tantamount to a “death penalty,” which the country survived thanks to the actions of public banks.
Strategic Studies Commission
The seminar started this Monday 20 and will last until Tuesday 21. The event is organized in collaboration with the Brazilian Center for International Relations (Cebri) and Fiesp. Its goal is to discuss, among other economic topics, the tax rules used by different countries around the world. The event marks the creation of the Strategic Studies Commission, coordinated by economists Andre Lara Resende AND Jose Roberto Afonso.
Lara Resende, who moderated Stiglitz’s speech, also criticized the high level of the Selic rate. “The combination of interest rates and very high taxes is deeply recessive and prevents growth. The correct formula is to have an interest rate lower than the growth rate. (economic). We seem to be doing the opposite. We put the interest rate on the moon and raised taxes, which reduces growth,” said the economist, a member of the team that created the Real Plan in 1993 and a former president of the BNDES.
The creation of the Strategic Studies Commission and the organization of the seminar were announced in January by Mercadante, who declared that he wanted to restore to the BNDES the role of debating the “major issues” of economic development, from the perspective of different lines of thought . The day after taking office in February, Mercadante said the tax framework would be discussed by the commission and during the seminar, which seeded behind-the-scenes conversations about possible squabbles between him and Finance Minister Fernando Haddad. Also in February, the two PT leaders were quick to downplay any problems.
This Monday 20, Mercadante said that Haddad can expect from him “total loyalty and cooperation”, after commenting, in a speech, that the Ministry of Finance is about to announce the new framework of fiscal rules, but he returned to defend the position of the participation institution to stimulate debate on the topic.
“We are waiting for a new framework (Supervisor). OR (Minister Ferdinand) Haddad can expect total loyalty and collaboration from me”, said Mercadante, opening the seminar, after stating that the BNDES does not intend to “replace” the ministries, but to play a complementary role. “Now, don’t ask us to stop saying what let’s think and help the government do it right,” concluded Mercadante, in a speech reiterating the expansion of the BNDES. “That timid BNDES is finished,” so, Mercadante said, “there is no point in trying to inhibit the BNDES” , because “there will be no censorship”.
Mercadante defended the coordination between fiscal and monetary policies as “essential”, but re-emphasized the importance of changing the TLP, the interest rate that marks the financing of BNDES. The bank president acknowledged that the tax “subsidies” built into the bank’s funding may have been “larger than needed in the recent past,” but reiterated again, as he said last week, that the BNDES has returned to National treasury about BRL 250 billion more than received.
Mercadante also defended the economic policy action to deal with the economic slowdown. “The outlook for this year is very low growth, below 1%. We need to react, we cannot accept it to continue like this”, said the president of the BNDES, defending the “extension” of the FGI Peac, the main measure adopted by the development bank to mitigate the effects of the crisis caused by covid-19. According to the BNDES chairman, there is a credit shortage in the economy, and the programme, which operates through the provision of guarantees for commercial bank loans, is important in addressing the problem.
While defending participation in the debate on the subject after the opening of the seminar, accompanying Alckmin to leave, Mercadante denied that the development institute could interfere in the elaboration of the fiscal framework. According to the president of the BNDES, the framework is a matter for the Treasury. The seminar program includes a conference by Minister Haddad, at the end on Tuesday 21st.
When asked about positions contrary to the control of public spending, such as those of the president of the PT, a federal deputy Gleis HoffmannMercadante replied: “The PT is a plural, mass, relevant party, but I don’t think the problem with the new framework is the PT. The problem is to obtain a majority in the National Congress that gives sustainability and respects the decision that the government takes That’s the big challenge.”
Alckmin praised Haddad’s team’s proposal for a new tax framework as “clever and well done”. Asked if he thinks other sections of government, such as the Civil House, agree with his assessment, Alckmin said the discussion was “harmonious” in the Executive.
“President Lula has not yet given the final word, but (the proposal) was well conceived. The whole government has discussed it in a very harmonious way, respecting the principle of having a fiscal peg that controls the growth of the debt and , on the other hand, charging for investments necessary for growth,” Alckmin said, refraining from commenting on the details of the Treasury’s proposal, such as whether public investments will remain outside the spending control rules.
Source: Terra
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