PEC-65: independence or patrimonialism in the Central Bank?

Image: Fernando Frazão/ Agência Brasil
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By PEDRO PAULO ZAHLUTH BASTOS*

What Roberto Campos Neto proposes is the constitutional amendment of free lunch for the future elite of the Central Bank

“If you don’t care about social justice, who pays the bills, you’re not a serious economist. You are a technocrat”
Maria da Conceicao Tavares

The draft Constitutional Amendment no. 65 proposes the financial autonomy of the Central Bank (BC) and will be discussed in a public hearing at the Senate Constitution and Justice Committee this week. The defense made by the president of the BC, Roberto Campos Neto, is that he needs to pay the bank's senior employees better. According to him, many of them look for jobs in private banks because, it is alleged, they are relatively poorly paid because their salaries are limited by the salary scale for State careers and, at the limit, by the civil service ceiling, the salary of a Supreme Court minister. Federal.

For now, let's not go into the merits of what it means to be well paid according to Campos Neto, focusing only on mathematics. By simple algebra, paying higher salaries to the Central Bank's senior bureaucracy increases public spending. Unlike economists who, like me, consider that Brazilian inflation is not generated by excessive demand but rather by cost pressure and distributive conflict, it is curious that Campos Neto himself accuses public spending of being the main responsible for inflation and, consequently, by the high interest rates he would be forced to impose.

Strangely, Campos Neto denies the algebra and claims that PEC-65 will release budget resources worth around R$5 billion annually, which will no longer be transferred to the BC and can be used, for example, in education and health. Miraculously, the salary increase for the Central Bank's elite would not increase public spending because the BC would now rely on its own revenue.

Campos Neto's argument is absurd because the so-called “own revenues” result from the misappropriation of revenues from the Brazilian State itself. The supposed promised fiscal savings amounted, in the seven years between 2017 and 2023, to R$26 billion, the cost of the BC in the federal budget carried out. However, the revenues of the Brazilian State that Campos Neto wants to appropriate to finance the salaries of the Central Bank elite totaled R$139 billion!

The equity gain in the transaction proposed by Campos Neto would be R$113 billion if PEC-65 had been in effect since 2017. Using simple algebra, the Brazilian State would no longer have R$139 billion in seigniorage revenues, that is, the relative gains to the State's privilege of issuing currency whose issuance cost is much lower than its value in Reais.  

Monetary authority budget (OAM) and seigniorage revenue (SNR) (in millions of reais)

YearOAMSNR
20173.37624.915
20183.5804.314
20193.75013.084
20203.795109.012
20213.833-21.195
20223.8148.998
20233.985540
Total26.135139.668
Source: BCB reports (current values)

Without budgetary limits democratically debated, PEC-65 determines that the amount of seigniorage is reissued by the Central Bank to pay for the new “competitive” policy of positions and salaries of the Central Bank itself. And this without any democratic control, because PEC-65 transforms the Central Bank of Brazil, a State institution, into an independent company.

It turns out that the billion-dollar issue would become public debt because, all else being equal, the BC itself is forced to mop up the currency that exceeds private demand (in so-called repo operations with public debt securities) so as not to bring down the high interest rates that its Monetary Policy Council (COPOM) imposes.

Thus, instead of reducing the federal public debt (always blamed in the reports of the Central Bank of Campos Neto and private banks for Brazilian inflation), seigniorage revenues would start to be used by the BC to increase the public debt by offering “competitive salaries ” for its high bureaucracy.

High bureaucracy, by the way, that supposedly threatens to resign to accept higher salaries in private banks, but that apparently does not fight with the Central Bank employees' union – strongly opposed to PEC-65 – so that all employees recover the wage gap accumulated at the time of another Constitutional Amendment, the Spending Ceiling, which came into force from 2017.

The trifling R$113 billion loss to public accounts: I cannot believe that Roberto Campos Neto is unaware of this elementary algebra. If you know it, it is immoral for him to defend “free lunch” for the Central Bank elite instead of public resources for those who really need it. If we can spend seigniorage revenues, why not use them to pay for social security, education and public health, whose budgetary growth is always criticized by Campos Neto's BC for raising inflation? Why can't we discuss this democratically at every annual budget?

Most likely, Campos Neto knows the basic algebra of the R$ 113 billion in losses to public affairs, but is simply hiding this huge sum from parliamentarians and public opinion. This account represents what the usual critics of the State would call a huge patrimonial appropriation for the high bureaucracy of the Central Bank at the expense of the increase in public debt that, in other circumstances, Campos Neto's BC claims to be concerned about.

This makes us suspect that, perhaps, other interests are being hidden in the proposal. Since the president of the Central Bank would start hiring whoever he wanted, greatly expanding the positions of free appointment and very high remuneration, who could be hired in the place of public servants and those working in the State career? Appointments of senior employees from private banks who resist working at the BC today because they have lost millions of salaries? Political appointments? Relatives and friends of directors, or friends of friends? Lobbyists interested in relaxing banking regulation? Make your bets.

Without irony, it would be important to commission studies on the inflationary impact of PEC-65 in the same terms as the alarmist studies on public spending used to criticize, for example, the linking of Social Security benefits to the minimum wage or spending on health and education to tax revenue. Perhaps even studies on the quality of banking regulation or, who knows, on the rate of hypocrisy in Brasília and Faria Lima, as what Roberto Campos Neto proposes is the constitutional amendment of free lunch for the future elite of the Central Bank.

*Pedro Paulo Zahluth Bastos He is an Associate Professor at IE-UNICAMP, where he coordinates Cecon – Center for Economic and Economic Policy Studies. Author, among other books, of The Vargas era: Developmentalism, economy and society (Ed. Unicamp). [https://amzn.to/3RxhzIe]


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