The emergency is social, not fiscal.

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The so-called “emergency” PEC only has one measure that is in fact urgent: the resumption of aid interrupted in January

Brazilian society suffers deep and widespread degradation. The process continues at an accelerated pace, without showing signs that it will be contained. And, truth be told, we haven't hit rock bottom. Brazil is in crisis, Brazilian civilization is in crisis. And any civilization fits into the depths of history.

I type this apocalyptic opening and stop. I will not continue in this thread. I don't want to contribute to the general despondency. And I don't even have the breath to talk about Brazilian civilization or the abysses of History. I wrote above: “truth be told”. Now, honestly, what is “the truth”? The most interesting answer to this impossible question was given by Christ to Pilate – Christ who, not only being human, could answer: “I am the way, the truth and the life”.

Economists in the Moon World

But I digress. I leave these larger questions aside and stay in the narrow field of economics. Brazilian economic policy could not be left out of the general degradation, not least because its missteps are an integral and outstanding part of the process.

Any questions? Just consider the following. The world has not yet overcome the greatest public health crisis of the last 100 years. Brazil is among the countries that have dealt the worst with the Covid-19 pandemic. Among the majors, Brazil turned out to be the most incompetent – ​​dangerously and fatally incompetent. And it won't be long before the giant Brazil, completely out of control, is seen as a threat to the rest of the world – in the field of public health and also in the climate field. Thanks to the unpreparedness and irresponsibility of the Bolsonaro government, the country is increasingly becoming an outcast in these two crucial fields.

Note well, reader, the trap we are falling into. We have the worst president in our history, unable to face the great challenges that concern Brazil and the world. Both in the climate field and in that of the pandemic, Brazil finds itself subject to growing external criticism, running the risk of embittering restrictions and various sanctions and, at the limit, of suffering a “politically correct” foreign intervention – carried out in the name of the greater interests of a humanity threatened at the same time by the pandemic and changes in the planetary climate.

So, despite all this, what is the central, almost obsessive, concern of local economists? At least those who are part of the government, work in the financial sector and give their opinions in the corporate media? As always, the public deficit adjustment. The supposed fiscal emergency overlaps with the social and public health emergency. Everything happens, reader, as if these economists lived on another planet. They are willing to sacrifice everything on the altar of government bills.

Neither does chicken coop heterodoxy!

I don't want to give the impression that concern for public finances is irrelevant. In any government, at any time, economic policy has to be conducted with an eye on the evolution of accounts. In my opinion, the extreme heterodox view that, in a country that issues its own currency, the deficit can be neglected does not apply. Let's not now, for God's sake, migrate from the chicken coop economic orthodoxy that prevails today to what could also be called chicken coop heterodoxy – a caricatured and simplified version of the theses defended by critical political economy.

For example, it is worth recognizing that, under certain circumstances, a rising public deficit can indeed overheat the economy, contributing to inflationary pressures and imbalances in the balance of payments. A policy of increasing spending or reducing the tax burden can increase aggregate demand at the wrong time, generating increased inflation and excessive imports. This is not currently the case in Brazil. Idle productive capacity and unemployment rates are at high levels. The balance of payments in current transactions remains under control, responding to the combination of an economy in recession and the external depreciation of the national currency. However, even with the economy sluggish, a crisis of confidence would make it difficult to finance the deficit on adequate bases, contributing to the shortening of the debt and to exchange rate instability. When numbers get much worse, care needs to be redoubled. This is what happened in Brazil in 2020: the government deficit rose rapidly, the debt grew as a proportion of GDP and its average maturities shrank.

Nature of our current emergency

Having said these reservations, in my view, the fact remains that the Brazilian economy and public accounts have strong points, among them the already mentioned position of the balance of payments in the current account, the floating exchange rate regime, the reduced weight of the debt foreign currency and, in particular, the country's high international reserves. Thanks to this, economic policy has some room for manoeuvre. I have already had occasion to address these points in recent articles in this column.[1]There is no fiscal emergency – at least not an emergency that overlaps with the pandemic emergency.

It was therefore not necessary to abandon the box office, in the name of fiscal responsibility, emergency aid and other measures to combat the health crisis. Nor argue that the resumption of aid is only possible with the approval of a reform of the constitutional tax regime. The intention of the team led by Paulo Guedes to condition the granting of aid for a few months, with a lower value and a reduction in the number of beneficiaries, to socially regressive constitutional amendments and which can make it difficult to manage fiscal policy, is an insult to intelligence. weaken the Brazilian State and undermine the country's development. Fortunately, the lack of support in Congress prevented some harmful ideas from the Ministry of the Economy, such as the suppression of permanent resources for the BNDES and of spending floors for education and health.

As I conclude this article, the “emergency PEC” was approved in the Senate and went to the Chamber, substantially dehydrated. There was damage control. There are, it is true, constitutional changes that are not urgent and not even well thought out, but the worst ideas seem to have been discarded. The irony is that the so-called “emergency” PEC only has one measure that is actually urgent: the resumption of aid interrupted in January. The other changes, including fiscal triggers, only have practical repercussions in the medium term. By leaps and bounds, without offering more than palliatives, the negotiations in Congress more or less contained the fundamentalist outbursts of the Ministry of Economy.

No one can, in good conscience, be against fiscal responsibility. It is up to defend the public accounts, yes. But without resorting to terrorism and resorting to extravagant proposals for constitutional reform. The emergency is social, not fiscal.

*Paulo Nogueira Batista Jr. he was vice-president of the New Development Bank, established by the BRICS in Shanghai, and executive director at the IMF for Brazil and ten other countries. Author, among other books, of Brazil doesn't fit in anyone's backyard: backstage of the life of a Brazilian economist in the IMF and the BRICS and other texts on nationalism and our mongrel complex (LeYa.)

Extended version of article published in the journal Capital letter, on March 5, 2021.


[1] See, for example, “Expenditure Cap – Pro and Con Manifestoes”, September 8, 2020; and “Collapse of public finances?”, July 13, 2020, articles available on my website:>.

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