international losses

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The practice of covering deficits with foreign savings cost us early deindustrialization, with the right to technological decoupling and reduced labor productivity, among many evils.

By Leda Maria Paulani*

Recently, the Central Bank released the result of the Brazilian external accounts for 2019: a deficit in current transactions of US$ 50,7 billion, the largest in the last four years. But neither our monetary authority nor the “market” seem very bothered by the result. From writers in the specialized press to financial executives, passing through the leaders of the monetary authority itself, the assessment appears in unison that we can rest assured, as direct investments in the country reached the respectable figure of US$ 78,5 billion in the same year, more than offsetting the strongly negative current account result.

However, no one highlighted the fact that our currency reserves plummeted by US$ 26 billion, an absolute record, considering the 25 years of the series that begins in 1995 (over this entire period we only had 5 years with negative results for reserves and the largest of them does not reach US$ 8 billion). What's behind it?

For more than two decades, since at least the beginning of the 1990s, the Brazilian economy has lived under the mantra of the benefits of foreign savings. A neoliberal and “marketist” proposition, the idea that foreign savings is always a good expedient for economies that have not yet developed is a logical consequence of one of the central assumptions of macroeconomic orthodoxy: once freedom of movement is assured, the providence of an invisible hand produces the results virtuous as ever, since capital flows from the already developed economies, where it is abundant, to those still in the process of development, where it is scarce, guaranteeing growth for all.

repeated ad nauseam by the mainstream media and the “experts” it invites, the thesis is easily contestable and numerous arguments can be raised against it, including those related to the history of capitalism. But it is enough to understand what such foreign savings ultimately consist of to clearly perceive how clumsy the argument is.

In conventional judgment, foreign savings are defined positively: whether they are greater or lesser in each period depends on the willingness to invest on the part of international capital owners, and the greater this willingness, the greater the amount of foreign savings available. each country to leverage its development process. Thus, the most important thing for countries like ours is to guarantee the conditions for this manna to flow constantly.

In reality, however, what matters is not whether there is such a provision, but whether or not the country in question has, at each period, a need for these dollars. If its external current accounts do not go well and the results are negative, it will need the comradely willingness of international investors not to have to advance in its currency reserves. The problem is even greater when these reserves do not exist, or are clearly insufficient. In these situations (see Argentina), countries become completely hostage to the demands of these capitals, greatly reducing their degrees of freedom in conducting economic policy and subjecting their sovereignty to the imperatives of foreign wealth. The most important thing for countries like ours is not to need this manna.

What does the 2019 result mean? It means that, last year, the Brazilian economy, walking on its own legs, was unable to currently produce (through the export of goods and services and income from Brazilian investments abroad) the dollars necessary to face its current expenses in dollars contracted in the same period: US$ 51 billion were missing. And where did they come from? From the kind outside investors, who promptly rushed to save us, giving us their hard-earned, hard-earned financial wealth. Foreign savings, therefore, appeared, leaving us “peaceful”. Thus, what is a bad result is disguised as a victory.

Now, it is evident that when the holders of international capital made their decisions to invest their resources in the country, they were not philanthropically targeting the needs of our economy and placing themselves ready to help it. On this point the conventional discourse is right. Foreign capital is always on the lookout for its own gains – rentier, speculative or derived from the existence of impaired assets. Hence the permanent defense that the best conditions are created for it to be always present. But whether or not global rentiers and financiers should pour their rich cash into our economy has to be their problem, not ours. On the contrary, we are the ones who should create the conditions for not needing it. Ensuring the constant flow of manna since the mid-1990s cost us early deindustrialization, with the right to technological decoupling and reduced labor productivity, among many other evils.

Directly associated with the shallow argument that the free movement of international capital flows ensures growth for all is another, equally shallow idea, that Brazil lacks savings and hence the permanent need to “import” them. In other words, everything would be resolved if Brazilians were less spenders and domestic savings grew. As this does not happen, we permanently need foreign savings (to “complete” ours) and therefore we must guarantee the good macroeconomic environment required by these capitals (read: high yields, full freedom and fiscal austerity).

But the unanswered question is: why is investment so low with so much “foreign savings” coming into the country for so long? Over a trillion dollars since 1995, almost an entire GDP! Why is gross fixed capital formation so low in Brazil? Why has she never responded to such a powerful stimulus?

The answer is simple: it is that such a speech is fallacious, based on fallacious theory. Such foreign savings means, domestically, only the existence of additional dollars to face current expenses, that is, consumption of imported goods and services and payment of rents to foreign capital invested here. It has no immediate relation to the creation of productive investments. It does not come to “top up” our savings, nor is it used to “top up” our savings and thus increase investment. It seeks to increase the value of this existing stock of dollar wealth and is used to cover the holes in our current accounts.

But, for 2019, even if we reduce the “benefit” of foreign savings to that, the argument remains false and in no way explains the optimism and tranquility of the market, financial analysts, the “specialized” media and the Central Bank. Foreign savings did not appear as expected. The net result of financial investments in the country, including portfolio investments and other investments, was not the celebrated US$78,5 billion, but around US$27 billion. In order to meet its external commitments, Brazil had, therefore, to advance in its currency reserves, in an unprecedented dimension until now.

And why were the current account results so negative? As expected, the press highlighted the poor performance of the trade balance, which produced a surplus of US$ 13 billion less than in 2018, but there is a number that should also have drawn attention: the US$ 82 billion destined for remuneration of foreign savings applied in our economy (payment of profits, dividends and interest). And this is not an isolated episode: a similar story has been repeated every year. So that's the summary of the plot: we need foreign savings to be able to remunerate it.

If we are not in a desperate situation, it is thanks to the currency accumulated during the boom times (2006-2011). But times have changed sharply. Clouds pile up heavily on the global geopolitical scene, placing enormous uncertainties on the progress of global commercial transactions and, therefore, on the result of our exports. More recently, it is also necessary to consider the no less disastrous consequences for the same variable of the insane foreign policy of the current government (just look at how Brazil has been treated by our “preferential partner”, the USA). As for financial investments, the generous foreign savings that redeem us, the situation is no less worrying: the average of net financial inflows over the last four years does not reach 30% of the average for the 2009-2015 period.

And so, without having taken any advantage of a relatively relaxed external situation, we are now facing a much more nebulous and dangerous scenario. In possession of a truly national project, we could have rescued our economy, even changing its direction: green investment, instead of predatory investment that destroys nature and our natural resources; generous social investments and in science and technology, instead of austere policies to satisfy the owners of international financial wealth.

About a quarter of a century ago, we were offered a rope to hang ourselves and we accepted it. We had a hard time with it around our necks (who doesn't remember the exchange rate suffocation of 1998/1999? and the crises of 2001 and 2002 that led us to the IMF?), but the noose loosened and we could have gotten it out of trouble. We missed the opportunity. Now we have to live with shortness of breath, which can get worse and worse.

*Leda Maria Paulani is a senior professor at FEA-USP. Author, among other books, of Modernity and economic discourse (Boitempo). [https://amzn.to/3x7mw3t]

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