By JOSÉ LUIS OREIRO*

Proposal is a simple palliative for the serious economic situation that Brazil is going through

A little less than 100 days before the first round of the 2022 presidential elections, the support base of the Bolsonaro government in the Federal Senate managed to approve, with the practically unanimous support of the opposition bench (with the exception of Senator José Serra) the PEC 1 / 2022, which creates a series of public policies to cushion the impact of rising fuel prices and inflation on the Brazilian population.

Among these policies, a R$ 1.000 grant for truck drivers, an increase in the Auxílio Brasil from R$ 400 to R$ 600, with an expansion of the program's beneficiary base by approximately 1,6 million people - a number equivalent to that of people who are currently on the waiting list for the benefit because they are entitled to it – and the increase in the value of the gas voucher for the low-income population. The total value of the measures is estimated at BRL 41,2 billion for the year 2022. It should be noted, however, that such measures are valid until December 31, when the presidential term of Jair Messias Bolsonaro ends .

Liberal economists, many of whom supported Bolsonaro's 2018 election out of fear that an eventual Fernando Haddad government would bring back (sic) "fiscal populism", are now terrified of the destruction de facto, even if not de jure, of the spending cap implemented under Michel Temer through EC 95.

The ease with which the Federal Senate suspended, even temporarily, the spending ceiling makes it very clear that (i) placing a fiscal rule in the Federal Constitution is no guarantee that it will be complied with under any circumstances and (ii) the ceiling of spending is an anachronistic fiscal rule that ties the hands of economic policy makers, taking away the necessary room for maneuver to face “unexpected events” such as the sharp rise in international energy and food prices resulting from the invasion of Ukraine by Russia in the February 24, 2022.

Like any economist who has taken the trouble to read the General Theory of Employment, Interest and Money British economist John Maynard Keynes knows very well, the decision-making process – both in the public and private sectors – is subject to uncertainty, that is, the occurrence of “unexpected events”, which demands flexibility to adapt to new circumstances that were not originally foreseen. In this context, a rigid fiscal rule like the spending cap is the equivalent of tying oneself to the mast of a ship in the hope that it will not be sunk by an unforeseen storm.

PEC 1/2022 was quickly called the Kamikaze PEC by the press and the opposition. I, frankly, cannot agree with the, so to speak, nickname. As is well known, the kamikazes were the pilots of the Empire of Japan's air force, who in a desperate attempt to stop the advance of the immensely superior North American squadron towards the Japanese archipelago in World War II, threw their planes loaded with bombs over US aircraft carriers in order to sink them. It is clear that this was a suicide mission whose result was innocuous: the losses suffered by the American fleet could be quickly replaced by the enormous industrial capacity of the United States.

There is no doubt that PEC 1/2022 is the Bolsonaro government's desperate attempt to reverse the government's massive rejection (about 55% of the electorate say they are against the current government) and thus have a chance of (i) taking the election to the second round and (ii) manage to reduce Lula’s advantage over Bolsonaro so that, in the event of defeat at the polls, he can contest the election result, in a Brazilian-style edition of January 6, 2020 in the USA. What is not clear, however, is the “kamikaze” nature of this PEC. Next, we will analyze this issue in more detail.

What exactly does the government have to lose with this PEC? Liberal economists will say that this is an attack on (sic) fiscal responsibility. On this point, I want to make two remarks. Firstly, when compared to the amount spent in 2020 on the various measures to face the economic effects of the Covid-19 pandemic (whose value reached almost BRL 600 billion), PEC 1/2022 is quite modest: it is about just under 7% of the amount spent that year.

Secondly, PEC 1/2022 does not differ substantially from the measures that countries like Spain and France are adopting to cushion the impact on the poorest population of the increase in energy and food prices. Indeed, on the last 25th, the Spanish prime minister, the socialist Pedro Sánchez, announced a package of measures that included aid of €200 per month for low-income workers, the self-employed and the unemployed, as well as a 15% increase in non-contributory and disability pensions. The value of this package of measures is estimated at €9 billion, equivalent to R$52,2 billion.

The Bolsonaro government's inaction would certainly cost him defeat in the October elections in the first round. Thus, for the Planalto Palace, it is a clear win-win game.

My criticism of PEC 1/2022 is that it is a simple palliative or “morphine” for the serious economic situation that Brazil is going through. The Central Bank has already publicly stated that, for the second consecutive year, inflation will close above the ceiling of the inflation targeting regime, which should remain between 8 and 9% in 2022. Although the GDP growth expectation has been revised to 1,7, 60,7% throughout this year, this is a meager growth equivalent to 1980% of the growth rate observed in the period 2014-2013 and insufficient to recover the GDP of 2021! Last but not least, it should be noted that between March 2022 and February 29, the number of families in poverty – according to data from the Cadastro Único – increased by XNUMX%.

The planned measures of PEC 1/2022 may mitigate, but they are far from being able to solve these problems, that is, it is too little and too late both to solve the country's serious socioeconomic problems and to save the Bolsonaro government from defeat. right at the polls in the October 2022 elections.

* Jose Luis Oreiro He is a professor at the Department of Economics at UnB. Author, among other books, of Development macroeconomics: a Keynesian perspective (LTC).

Originally published on the website Jota.info.