By LEDA PAULANI*
Campos Neto fulfilled with cowardly bravery his pusillanimous mission of initiating the movement to reverse the positive expectations that were emerging for the economic scenario under the Lula government.
Exactly six months ago, on June 22nd of this year, I published on the website the earth is round “Economic labyrinth”, an article in which I asked myself what the catastrophe was that had caused the very promising expectations about our economy in the first four months of the year to be transformed into a gloomy scenario, full of dire predictions.
In the absence of any objective basis capable of explaining such a transmutation (inflation was within the target, expectations about GDP growth were rising, tax revenues were surprising, and unemployment continued to fall), I concluded that the answer to my question was not technical and that when it comes to analyzing market moods, it is also necessary to take into account factors of another order.
I warned there that, given the autonomy of the Central Bank, established in February 2021, and the specific way in which relations between the financial market and the monetary authority are structured, in addition, of course, to the superlative weight of financial wealth, institutional conditions had been created in Brazil for a kind of autism in monetary policy, capable of talking only to itself and turning its back on the country. This gives rise to the effective power that the financial market has, and the financial wealth of those who are its representatives, to concretely change the behavior of the economy (a self-fulfilling prophecy is the name of the maneuver).
I then diagnosed the beginning of this reversal process in a speech by the president of the Central Bank, appointed by Jair Bolsonaro, who, in mid-April, from Washington, where he was participating in an IMF meeting, began to state that there was, at that moment, “more insecurity” than that perceived during a previous meeting of the same organization. Roberto Campos Neto began to signal that it would not be possible to continue the downward trajectory of the Selic, which, having started the Lula government at 13,75%, had experienced, since the beginning of August 2023, a movement of cuts that had taken it to 10,75%, with the forecast of maintaining the downward movement.
With Campos Neto's continued unfounded inferences about the future of the economy, the Monetary Policy Committee (Copom), in its meeting held in the first week of May, in a split decision, reduced the Selic rate by just 0,25%, when the expectation was that the cut would follow previous ones, remaining at 0,5%. At that point, the forecast in the Focus Bulletin (a report on periodic research carried out by the Central Bank with financial market institutions and consultancies) of a Selic rate of 9% by the end of 2024 had already changed to 10,5%. Therefore, a complete stagnation in the fall of this basic price was expected by the end of the year, a decisive fall in order to consolidate the economic recovery movement, including opening space for a recovery of the industry's leading role in line with the demands imposed by the necessary ecological transition process.
Even though the scenario that had already emerged was quite adverse, there was no reason to believe, at the end of June, that we would end the year with a Selic rate of 12,25%, that is, more than three percentage points above the milestone expected before the turnaround began. I think it is appropriate to make an analogy with the military coup of 1964, since the subject is on the agenda. It has always been said that AI-5, enacted in December 1968, was a coup within a coup, decisively reinforcing the power of the military. Here we have a similar movement: the turmoil with the exchange rate, causing the price of the currency to remain stubbornly above R$6,00 since the beginning of December, works as a coup within a coup, blatantly demonstrating the power of the financial market.
Initiated by the president of the Central Bank way back when, this underhanded operation now puts at concrete risk the economic recovery and the good political prospects that were emerging for the continuation of the movement that had halted the rise of fascism in the country: the rise of the dollar almost immediately affects price indexes and takes inflation out of the target (which, by the way, is too narrow, even by international standards for already developed economies, and should be raised by the National Monetary Council); this leads to increases in the basic interest rate, which causes the public debt/GDP ratio to rise and further worsens expectations, giving rise to a new round of exchange rate devaluation with continued pressure on price indexes and interest rates, and so on, in an unfortunate vicious circle that converges towards the inevitable reduction in growth prospects for output, employment and income.
It is legitimate, however, to ask: but is there no objective factor that justifies the rise in the currency price? Is it all the result of manipulation by petty and reactionary interests? Yes, there are some objective factors, but nothing that justifies such a rise in the exchange rate. Basically, we have, on the one hand, a rise in the price of meat, which, a victim of drought in the producing regions, is still going through a period in which the harvest is seasonally reduced, and, on the other, price increases of commodities international markets such as coffee and oil (the latter affected by the growth of tension in the Middle East).
Furthermore, the demand for dollars to send profits and dividends abroad also tends to increase at the end of the year (another seasonal factor), increasing demand for the currency and putting pressure on its price. Finally, on the international level, there is a tendency for the dollar to strengthen, corroborated by Donald Trump's victory in the American elections, causing the devaluation of practically all emerging country currencies (although, on average, they accumulated a depreciation of less than 16% over the year, compared to almost 28% for the Brazilian currency).
Now, if we consider that a good part of these objective factors live up to their name – seasonal – there is very little left to explain the upward movement of the exchange rate, and they are not sufficient, under any circumstances, to justify the price that the dollar has been reaching in the Brazilian market. Repeating what I wrote six months ago regarding the analogous question, the answer to the question about the causes of the deterioration of the Real at the end of 2024 is not technical. What we are experiencing is a coup within a coup, it is the upper echelons wielding their weapons to prevent the implementation of a government program for which they have no sympathy whatsoever and by which they feel threatened in their privileges.
The long-awaited announcement of the fiscal package, made on November 27, was a disappointment for them, because, in the view of some “experts” – those that Bacen listens to in its research for the Focus Bulletin – instead of announcing robust and effective spending cuts (the cuts did not change, as they wanted, the constitutional links between health and education or the link between the BPC and the minimum wage), the government came with tax reductions (the proposal of exemption from income tax for those who earn up to R$5.000,00 per month, for them unacceptable), and on top of that announcing that those who earn more should pay more and will pay more taxes.
In response, they threw gasoline on the exchange rate fire, in a movement of asset reallocation with constant flight from those denominated in Real. Furthermore, the overshutting of the currency price promotes huge gains for those who bet against the Brazilian currency in the futures markets, because the more the exchange rate rises, the greater the gain. The shamelessness is so great that even fake news of alleged statements by Gabriel Galípolo, the next president of the Central Bank, were spread across social media on Tuesday, December 17, in order to increase uncertainty and push the dollar exchange rate even higher.
And for those who think that all of this is just a conspiracy theory of history, it is worth paying attention to what one of the famous experts in the financial market says:[I] “This one-off drop today, after the super high in the morning, [he is referring to the exchange rate movement on the same Tuesday, December 17] is yet another message from the market, showing the government that there is no room for error; if the reforms do not move forward, the dollar will be pushed back to its maximum level.” The blackmail is crystal clear.
And so we are trapped in this cunning spider's web, whose "rationality" is echoed by the mainstream media, in which the difficulty in accepting a primary deficit of just over R$60 billion (which refers, for the most part, to social spending) triggers a movement that makes government spending grow by more than R$200 billion annually – the result of the increase of more than three percentage points in the basic interest rate in relation to the level at which it could be without the blackmail from above (with this last expense all going into the pockets of the owners of financial wealth).
It should be noted, in conclusion, that even such a negative primary result (undesirable, but not at all scandalous compared to what is happening today, even in the most developed economies) would still be substantially lower and would remain within the parameters foreseen by the fiscal framework (zero primary result with a range of 0,25% up and down), were it not for another factor of enormous importance: the repeated insistence of the Legislature – the other broad and comfortable coverage in which the upper class parades – in not giving up the tax privileges held by various sectors, payroll tax exemptions in the first place, and which imply enormous tax expenditure for the country.
Because of this power of the Legislature, some political analysts say that we currently live in a semi-presidential system, that is, a system in which the Executive actually has much less power than it appears to have. Looking at what happened in the second half of 2024, we are forced to say that the Legislature has a very harmonious partnership with the financial market, with both contributing equally to preventing the results of the polls from becoming concrete. Under the command of this double hijacking, it actually ends up making little difference which party is in charge of the Executive.
The need to reverse the auspicious economic scenario under Lula's government was what led Campos Neto, a notorious Bolsonarism enthusiast who saw the end of his term as head of the Central Bank approaching, to begin the movement to reverse expectations about eight months ago. He carried out his cowardly mission with cowardly bravery, creating a situation in which the room for maneuver of the new Central Bank management became extremely reduced, as evidenced by the last Copom's forecast of raising the Selic rate by another two percentage points by March 2025. We can only hope that, even in such an adverse environment, the economic results of this third Lula administration will be enough to once again rid the country of the monster of fascism, which remains dangerously lurking.
*Leda Maria Paulani is a senior professor at FEA-USP. Author, among other books, of Modernity and economic discourse (Boitempo) [https://amzn.to/3x7mw3t]
Note
[I] https://economia.uol.com.br/noticias/redacao/2024/12/17/dolar-abre-a-terca-feira-em-alta-apos-recorde-e-alcanca-r-614.htm
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