By ANDRÉ RONCAGLIA*

Fundamentalist neoliberals like Guedes use an elastic “acceptable timeframe” for making their predictions. This deadline is sensitive to the time required for your “reforms” to finally take effect; six months, one, two… up to four years

The unemployment numbers are alarming. In the last month, more than a million people lost their jobs in Brazil and at least 44% of companies have already suffered significant losses in revenue due to the measures to contain the contagion of COVID-19.

The disorganization of the federal government in running this campaign shows the limits of Bolsonaro's strategy. Once in possession of it, a laissez-faire managerial. Ideas are played primarily in bills that lapse depending on the mood of the government's support base in the Chamber. The government's capacity for initiative only serves to feed advertisements in the bubble of social networks. When a project fails, people blame the “old politics” or the “left” that doesn't want to see the country move forward. The clearest “successes” of this government were all inherited from the Temer government (pension reform and economic freedom law).

It is therefore not surprising that the notorious ministerial meeting on April 22, 2020 is so empty of projects to build any notion of the future. The meeting clearly shows the project Big House with Casino, preferably in the Amazonian farm that Ricardo Salles wants to found by “passing the cattle” of environmental deregulations.

Guedes' speech is one of the most fanciful in the entire meeting. From the idea that studying hard is equivalent to reading “eight books” to the propaganda that the economy was about to take off before the pandemic. Fundamentalist neoliberals like Guedes use an elastic “acceptable timeframe” for making their predictions. This deadline is sensitive to the time required for your “reforms” to finally take effect; six months, one, two… up to four years. After all, according to this vision, “restrictions” are the best discipline to boost the inventiveness of individuals, whether they are businessmen or civil servants.

The problem is that Guedes has Bolsonaro's pen at his disposal. Therefore, his detachment from the concrete reality of Brazil is a danger. Whether it's staged or authentic, we'll never know. What matters is your stubbornness with theoretical childishness already abandoned decades ago by the school of economics that inflates the value of your curriculum. And he is willing to go to great lengths to impose this worldview on reality. The first way is the delay in transfers to vulnerable families and micro and small entrepreneurs through bureaucratic barriers that are insurmountable by most of the needy population. The second is the option of transferring the money to companies through commercial banks. Even offering, via the National Treasury, a guarantee of 85% of a loan to maintain commercial activities, commercial banks will use the same risk assessment rule that they use in normal times. The bar of approval of the new loans will remain unreachable, particularly as the economic floor sinks in around the banks. After all, the latter are always protected by exclusive access to the liabilities of the Central Bank, which buys the banks' “bad assets” and places them in its assets.

I will illustrate with a “fabulous” example. You borrowed money from a bank to start a business just a few months before the pandemic. He set up the store, hired people, stocked up and everything else. The pandemic came and his store sank. The bank pressures you to pay, but nobody wants to buy your store; it has become a rotten asset, that is, without any chance of prospering within a period compatible with the creditor's patience. You go to the Central Bank and it acquires this unsaleable asset and returns you cash. His store that was an “illiquid asset” became “liquid”. You pay the bank and get out of debt. End of fable.

This is the spirit of the War Budget PEC: to guarantee exclusive access to liquidity generated by the Central Bank… but only to commercial banks and the financial market. Your hypothetical “store” will remain “illiquid”, but the commercial bank will be able to sell the “bad credit” (loan made to you) to the Central Bank. The bank gets rid of the problem and you owe the Central Bank. This is the exorbitant privilege conferred on those who partner with the State in creating means of payment. Later, when the economy recovers, the Central Bank sells this “credit” to another person and withdraws from the economy the “excess” cash that it transferred to the bank. You continue with the debt, only you owe it to another creditor.

Paulo Guedes is terrified that the people will discover this access to the State's coffers. The health crisis is, for Guedes, a “Trojan horse” taking the average citizen into the public budget. The necessary expansion of government spending could be immediately financed through the issuance of currency by the Central Bank.

This is exactly what the developed countries decided to do: run the risk of stripping the king by open the financial floodgates of the state. Guedes does not capitulate so easily. From the outset, the government's strategy has been to postpone measures, take its time formulating complex conditions for access to resources by companies, families, states and municipalities, as well as to push Congress and governors to take responsibility for obstructing their intentions of “improving Brazil” in his own way.

During the past weekend, news began to circulate that the government would demand US$ 4 billion from multilateral organizations to cover the impacts of the pandemic. According to report by O Globo, the operation under analysis by the government would involve six banks, with maturities of up to 20 years: the French Development Agency, the Inter-American Development Bank (IDB), the World Bank, the Andean Development Corporation, the German state development bank KfW and the New Development Bank, of the Brics (Brazil, Russia, India, China and South Africa). At this exchange rate, the resources would add up to more than R$ 20 billion, divided as follows:

• BRL 9 billion for emergency aid;
• R$ 5 billion for Bolsa Família;
• R$ 2,88 billion for the job maintenance program; It is
• R$ 4 billion for unemployment insurance.

True, the operation is financially protected. In addition to the derisory value, if there is additional exchange rate depreciation, the country is shielded, as the growth in financial obligations abroad will be offset by the appreciation of our assets (international reserves). If there is exchange rate appreciation, the debt is cheaper when measured in reais.

Despite the appearance of financial rationality, this recourse to external creditors is mere show business. Let's see. Brazil has US$ 340 billion in its international reserves. In addition, it relies on the US$ 60 billion Currency Swap facilities that the US Central Bank (FED) has extended to Brazil and several other emerging central banks. The FED extends immediate liquidity in dollars to the Central Bank in exchange for the equivalent amount in reais. To be clear: $4 billion < $60 billion.

To make the situation even stranger, from January to May of this year, Brazil accumulated nearly BRL 600 billion with exchange gains from reserves, due to exchange rate depreciation. The government is considering using this money for payments on public debt. As I have already expressed with other colleagues, this fiscal reserve could be very useful at this time. A bill sent to Congress by Federal Deputy Paulo Teixeira (PT-SP) allows exceptional access to these resources only while the pandemic lasts. I don't have high hopes for your approval.

Therefore, if there is no shortage of money, why resort to a loan from multilateral agencies?

I have a chance. Using the words of Salles, where the buoy goes, the cattle go. First, this symbolic loan could make room for others with increasing amounts, if interest rates remain low and the exchange rate continues to depreciate. Second, the financial benefit is accompanied by political protection for the future restoration of order: this is a strategy to outsource responsibility for imposing an austerity agenda in the post-pandemic period.

Na Odyssey of Homer, Ulysses chained himself to the ship's mast so as not to fall into the siren's song. The Ministry of Economy is the Ulysses of the plot and the “siren song” is “functional finance”. The latter is the idea that the State has a flexible budget, not being subject to the rigid balanced budget rules of families and companies.

It should be noted that the division between the Central Bank and the National Treasury is an administrative self-imposition. It generates accounting compartments for financial control purposes. In essence, there are no operational limits on issuing currency. Indeed, the limit for stretching the public budget is the productive capacity of the economy. This is an “inflationary restriction” (a lot of money chasing few goods). Until then, monetary issuance and indebtedness do not harm macroeconomic stability, but it harms the very deep interests of public debt creditors.

The fear is that if inflation gets out of control, the value of the national private sector's financial assets will suffer a real loss, since it is heavily invested in public debt. Therefore, it is necessary to protect yourself from this siren song. But how? Bolsonaro speaks a “liberalese” with a strong statist accent that does not convince the interest groups that Guedes represents. Better make a hedge policy with one or more external creditors. After all, the IMF is no longer the same and does not advocate austerity with as much fervor as before.

This move by Guedes shows that he is willing to make this huge financial return in order not to reveal that Brazilian democracy fits into the public budget. Even in the midst of a calamity of this magnitude, as long as he is a minister, this secret will remain guarded under the hermetic jargon of economics and administrative law. And in this he has the support of many economists and the president of the Chamber, Rodrigo Maia. This move by Guedes is a caricature of a government that, unable to move into the future, has the past as its final destination.

* André Roncaglia is professor of economics at the Federal University of São Paulo (Unifesp).

Originally published on GGN newspaper.