An unsuspecting foreign observer who wishes to understand what is happening in Brazil today through traditional Brazilian media is very likely to go into a tailspin. According to the dominant narrative, the country is going through a triple crisis: economic, political and moral. Every day, to the flavour of carefully selected information, one of these three options is highlighted in a roulette pointed at nothing less than the future of the country.
So it is worth understanding the reasons of the breakdown. In the economic sphere, a new study by the Center for Economic and Policy Research (CEPR) is very enlightening. It concludes what government supporters and opponents should minimally agree: the economic slowdown in Brazil, more than a result of external factors, although they have some influence, is the result of policy choices made by the government. Choices that threaten the achievements of recent years in reducing poverty, increasing income and a certain reduction of inequality.
The paper, “Aggregate Demand and the Slowdown of Brazilian Economic Growth from 2011-2014,” by CEPR Senior Research Associate Franklin Serrano and economist Ricardo Summa, looks in detail at the sharp slowdown in the Brazilian economy for the years 2011-2014, in which economic growth averaged only 2.1 percent annually, as compared with 4.4 percent in the 2004-2010 period. The authors argue that the slowdown overwhelmingly results from a sharp decline in domestic demand led by government policy, rather than from a fall in exports or from any change in external conditions.
The Brazilian economy had room to expand after 2010, but the government chose to reduce aggregate demand through changes in monetary, fiscal and macro-prudential policies.
Namely: 1) The Central Bank started one after February 2010 interest increase cycle that lasted until August 2011, raising the Selic rate from 7.5% to 13.5%. Rising interest rates and macro-prudential measures have reduced credit growth, which helped end the boom in consumption; 2) In late 2010 the government promoted through a sharp reduction in public spending growth, a strong fiscal adjustment to increase the primary surplus and reach the target of 3.1% of GDP in 2011; 3) In 2011 public investment from both the federal government and public enterprises, fell dramatically, decreasing 17.9% and 7.8% in real terms, respectively.
Government’s contractionary policies led to a sharp decline in private investment, so the total investment (public and private) fell dramatically. In the words of Mark Weisbrot, Co-Director of CEPR: “It is clear that efforts to convince the private sector to lead economic growth, while cutting public investment and taking other measures that reduced aggregate demand, have not worked in Brazil.”
But there is another key issue that is virtually non-existent in analysis produced by traditional media: the debt system. Fiscal adjustment underway in the country aims to ensure a primary surplus able to pay the interest on public debt. Such debt is common tool used by governments to fund investments or increase resources. For this, the National Treasury issues government bonds and the Central Bank sells at auction.
It turns out that the basic interest rate, the Selic, is used, among other things, to compensate investments made in such bonds. From December 2014 to June 2015, this rate rose from 11.75% to 13.75% per annum. On a public debt of 2.451 trillion reais, this increase led to an extra payment of 49 billion reais. How to understand, then, that the federal government make a fiscal adjustment that cuts the budget by almost 80 billion reais and at the same time, increases government spending by increasing the Selic?
The money used to pay debt service is the same missing to invest in the country. And this is essentially a political choice. Was the government committed to overcoming this obstacle, would condition the necessary fiscal adjustment to an audit of public debt, provided in the Constitution, to expose possible fraud in bonds that are held by banks and large companies, as well as the practice of interest on interest which is illegal. Any mention of this possibility, however, is labelled as “default” by agents of the financial market and the dominant narrative.
SELECTIVE ANGER
In the wake of the economic recession, the political and moral crises. When President Dilma Rousseff, newly re-elected for the fourth term of the Workers Party in the federal government, chose to do what she fought during the campaign, she lost her political capital. The reprove of her government, of course, is not only by those who did not vote for her. Dissatisfaction is widespread and the reasons, different.
In Congress, a hostile Brazilian Democratic Movement Party went on to command the agenda and to hinder the adoption of measures of fiscal adjustment, in addition to approving others that raise public spending, with the support of the opposition – which advocated the adjustment before the election, but went on to play the weakening of Rousseff government, without much worry about the fate of the country. After all, if the government is not consistent, how to expect the opposition to be consistent? If even Worker Party politicians voted against Rousseff adjustment, why the opposition must be united?
Ironies aside, any project of Brazil, if we had one, is now under the shadow of the private interests of power owners. And as icing on the cake, the moral crisis represented by the corruption scandal of the moment under investigation by Operation Lava Jato. Maximum proof that the Workers Party, once in power, behaved like the others, the excesses in Petrobras show not only an obscure project of Workers Party power, as many want to believe, but the modus operandi of political and economic oligarchy in Brazil. And here comes the obvious selective indignation that see the demon only where it is convenient to its eyes.
Those who believe in impeachment as a solution to the crisis are wrong. This newspaper is not shy to criticize the paths chosen by the government, but hopes that for the sake of democracy and institutional stability, Dilma Rousseff can complete her mandate.
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