Image: Erik Karits


There is resistance to changes in direction in the management of the economy and attention to the interests of society as a whole

"It is impossible to understand the economic system in which we live if we try to interpret it as a rational scheme. It has to be understood as a difficult phase to manage, in a continuous process of historical development"
(Joan Robinson. The failure of the liberal economy.

In Brazil, the last ten years have not been easy. There was an economic slowdown, recession, increased unemployment, more precarious work relations, the burning of countless small capitals, lawfare, a problematic presidential impeachment, the rise of the extreme right to power, the resurgence of hunger and the unfortunate management of the multiple crises generated by the COVID-19 pandemic. In the strictly economic field, the crisis has lasted almost a decade, the longest in the country's republican history, and income per capita is still lower than that observed in 2014.

The change of government, in 2023, started with another project for Brazil. There are, however, distressing shadows accumulating to make one fear for the future. Otherwise, the available scenario projections highlight threats whose origin is not in inflation, deficit or public debt, but in something similar to … sabotage. In fact, the economy does not even need to compose the list of causes of the problems that are coming, but the deliberate action of some institutions may, soon, transform it into the monster of a new recession.

The recession, in itself, is not new in the country, but the political moment is conducive to dictatorial and even neo-fascist adventures, always desired by identifiable social groups. It is important and necessary, therefore, to answer three questions to overcome the dangers that involve the future of our country: (a) why, today, contrary to the past, is the economy not the greatest threat? (b) why does politics currently prove to be the greatest danger? and (c) how is it possible to circumvent the various risks and hope for a dignified future for Brazilians again?

First, you need to recognize the threats. The numbers deny it, but the accusing finger of liberal faith insists on pointing to ghosts as the cause of national problems. It is obligatory, then, to state: the crisis that is emerging is not a fiscal one. Even in terms of the liberal economic model, it should be noted that the government that ended in December 2022 ended the year with a primary surplus of BRL 57,1 billion, failing, however, to comply with legal and moral obligations towards the poorest.

The fiscal balance, by the way, has already shown a recovery trend since 2017, sustained, to a large extent, in spending cuts. Even the net public sector debt (DLSP), far from presenting an explosive trajectory, except for the atypical year of 2020, has shown stability at around 74% of GDP since 2017. The jump to almost 87%, in 2020, at the height of the pandemic of COVID-19, was reduced to 73,5% in 2022 (IPEA, 2023). Even some fear about the possible spending bias of the new government does not consider the performance of public accounts in the Lula 1 and 2 governments and, therefore, seems wrong if the past is taken as relevant information.

In turn, the accumulated inflation for 12 months, measured by the IPCA, has been falling continuously since July 2022, going from 11,89% in June 2022 to 5,6% in February 2013. Furthermore, there is a consensus among economists that the still high level is not under the control of national economic policy due to the war in Ukraine, the prices of commodities agriculture, industrial bottlenecks caused by the pandemic and the power of large oligopolies to set prices around the world. Naturally, little can be done immediately to alleviate the shock.[I]

Thus, as a result of the diagnosis of the causes of current inflation, it is not logical to attribute the problem to the government and public accounts, as seen, need not be feared. That said, with the country showing a high idle capacity of factors, notably of labor, it makes no sense to apply economic models that assume that inflation is caused by excess demand, imposing, as a solution, to reduce the purchasing power of people, companies and government (SERRANO, 2010). In other words, it is unwise to provoke a slowdown in the economy when there is meager growth or recession. But that is what is being done today: raising interest rates to contain aggregate demand. A clear mistake.

Precisely because of this “error”, the risk, in fact, arises from the lack of credit in the economy, aggravated by the uncertainties caused by the potential international banking crisis, born, again, in the United States. In Brazil, already in 2019, several economists pointed to the contractionary policy of the Central Bank as causing problems in the performance of the economy, highlighting the long duration of the crisis, which started in 2015 (PIRES; BORGES; BORÇA JR., 2019). Coincidence or not, precisely when liberalism (radicalized into neoliberalism) resumed control of economic policy still within Dilma Rousseff's government (AMORIM, 2015).

Today, with the pandemic under control and amid the weak recovery process of the national economy, the Central Bank of Brazil has returned to the load to empty the pockets of part of Brazilians. The chart below shows the choice made by the monetary authorities.

Delinquency, default and average interest rate of the loan portfolio, 2011-2023

The average interest rate is tracked, passi passu, both by the percentage of arrears within the credit portfolio in the country and, more seriously, by the percentage of default on loans obtained. The problem is that after the peak of the crisis, caused by the COVID-19 pandemic, the basic interest rate, the SELIC, defined by the Central Bank, jumped from 1,9% per year (between 06/08/2020 to 17/03/2021 13,65/04) to a spectacular 08% per annum (since 2022/618,4/11,75). A staggering increase of 17% or 2015 pp As observed by several economists, the shocking thing is that even before the economy recovered from the problems faced in the pandemic, the Central Bank kicked the basic interest rate, in just 2016 months, to levels as high as those experienced during the severe recession of XNUMX-XNUMX.

The private financial sector followed the SELIC closely when defining the interest rate it charges for loans.[ii] Thus, in the same period, it drastically increased the cost of borrowing resources that paid 18,5% in interest in September 2020 and started to pay 31,2% in January 2023. An increase of 13,04 pp, equivalent to 71,8 .2023% increase in the average cost of borrowing in Brazil (BANCO CENTRAL DO BRASIL, XNUMX). The price of money, naturally, made new businesses and investments unfeasible, especially for small and medium-sized capital, and brought variable rate debtors closer to arrears and default. In other words, it suffocated the economy. So much so that, given the jump in the basic interest rate, the volume of credit in the country, discounting inflation, was far from growing significantly in real terms.

In short, the Central Bank is imposing an unreasonable and extemporaneous liquidity crisis on the country, as raising and keeping the interest rate high creates a restriction on credit which, in turn, is the origin and source of the currency that circulates in the economy. What is serious is that liquidity problems can engender severe crises, recessions and political instabilities. In theory, the reduction of aggregate demand is the target variable of this contractionary monetary policy carried out by the Central Bank. In fact, however, by defining the SELIC and inducing credit pricing, it represses the interest of applicants and causes a reduction in private currency issuance, shrinking the liquidity of the economy.

The same process has yet another side that is little commented on in the Brazilian economic debate: the reduction in aggregate demand interferes with the cash flow and profit of companies, which consequently see their market value decrease and, consequently, their credit analysis deteriorate. Banks, on the other hand, faced with smaller guarantees, become more rigorous in granting credit, pooling liquidity and investing in (really) remunerated public securities in credit operations. overnight. That is, the demand for credit decreases and so does the supply, but the financial market and its investors continue to gain from the return offered by government bonds.

Without credit and illiquid, the economy slows down, loses jobs, burns capital and may enter recession. In capitalist countries, where exchange commands people's lives, the deterioration of the material well-being of families immediately turns into dissatisfaction, which, in turn, can grow and metamorphose into delegitimization of the government, strikes and protests, at the limit, violent. In this way, the Central Bank and the basic interest rate can, if used with interest, constitute a dangerous political weapon of mass destruction and an insidious tool to sabotage the State. It is therefore evident that the Central Bank has enormous political power and it is necessary to ask: in whose favor will it use this power?

This is an issue that is still not very apparent in the newspapers and in the mainstream media debate. In the specific case of recent Brazil, the Central Bank gained autonomy from the Presidency of the Republic in 2021, when Complementary Law 179 came into force. Not by chance, these were the years of neoliberal economic domination, of victory for the right and executive power in the hands of the extreme right. The name chosen to command the institution, as well as its directors, naturally, shared the creed of the government in question and were applauded by most institutions and agents in the financial market. They were also turbulent years around the world due to COVID-19, problems in global production chains, rising inflation and dissonant expectations regarding the future of the national and world economy. In view of this and serving the priests of the orthodox economic faith, the Central Bank applied here the shamanism indicated by the US manuals: it raised the interest rate (a lot) to reduce demand.[iii] The confusion is armed.

Autonomy allowed the clergy of the Central Bank, periodically gathered in councils, to maintain, in 2023, the contractionary monetary policy with all its harmful effects, even with economic facts contradicting its encyclicals. On the other hand, the Central Bank, since its autonomy, has not presented any positive result from the point of view of inflation, employment or credit and Brazil is still skating in the same crisis that started in 2015. A perverse policy implemented despite the idle capacity of the economy , unemployment, wage stagnation, laughable economic growth, widespread poverty and hopelessness. Even with the current government intensifying articulations with society, promoting important interlocutors among businessmen, promising to close the year with a controlled deficit and, at the same time, designing a tax reform capable of being politically accepted,[iv] nothing changed. Patavina seems to affect the dogmatic COPOM or question his faith. What leads the Central Bank to discourage the economy?

For many it is just myopia and inconsequential faith in ideology disguised as science. Many others find it strange and ask: is it sabotage? Whatever the answer, the effects of the Central Bank's contractionary bias were never as dangerous as they are today. Why? The answer is in politics. The fragility of Brazilian democracy is well known. More recently, since the 2016 Coup, identifiable social groups have struggled to lessen the weight of the popular will at all relevant levels, and a far-right government has shown how easy it is to garner and co-opt affections within a society marked by inequality, poverty, low schooling and, mainly, fear.

Those interested in emptying the country's already limited democracy brought together the similar interests of big capital and the powerful media companies and the greed of the financial market. They manipulated emotions: the fear of small capital after consecutive years of crisis heightened by the pandemic, the anger generated by the loss of well-being suffered by the majority of the population in endless 10 years of economic difficulties and the diffuse fear disseminated by the moralistic and partial discourse of various Christian denominations. The middle class was essential. Their fear of the material ascension of the poor, between 2003 and 2014, and their growing distance from the rich, made huge parts of the group approach conservative and authoritarian discourses, dreaming of redeeming privileges as a low-paid maid with no rights, porters, security guards, couriers and all sorts of personal services cheap because of underemployment.

It was then that Brazil recognized itself as hierarchical, racist, misogynistic and interested in maintaining the status quo with all its injustices and suffering imposed on those who have no power to defend themselves. Otherwise, the XNUMXst century exposed the interests, fears and solitude inherited from centuries of slavery, underdevelopment and keeping the poor in “their place”. It is not surprising that political hatred, proclaimed in verse and prose, has seduced parts of society for different reasons.

In this sense, scientist Luis Felipe Miguel (2022) is convincing in demonstrating that the limit of Brazilian democracy is the reduction of social inequality. That is, repeatedly throughout history, when the population achieves better material conditions, shows the potential to claim or organizes itself politically, the power elite shows its oppressive strength and resumes absolute command, leaving no room for contestation. Therefore, the 2003 election was something new, never before allowed by the owners of Brazil: a Getulist worker and skilled negotiator assumed, by vote, the Presidency of the Republic. His team, largely from the public university, advanced on sensitive issues for the privileged, including the richest who, with an eye on the long term, could not let a social-democratic government legitimize itself in the country.

Something would have to be done (and it was) to put an end to the popularity achieved by the government and the left-wing political forces that supported it. The success of the effort undertaken by the Brazilian power elite (apparently with international support) was the violent Brazil, exposed in its crudities and divisions that the election of the extreme right, in 2018, only confirmed as a trend. The extremist government, however, proved to be too inept, creating too many sharp edges with less protected populations and organized social groups. Mistakes in dealing with relatively simple issues made him difficult to defend, despite the backing of a powerful network of fake news well-paid (GALLEGO, 2018).

Lula da Silva's return to power in 2023 imposed a historic defeat on the Brazilian extreme right and its wealthy, religious and military supporters. The political strength of this group, however, remained enormous, with numerous votes for the former president, the election of a large number of deputies and senators sympathetic to the reactionary discourse, and even some governors. Furthermore, the supporting digital social networks that created extremist narratives, if they apparently lost strength, were never dismantled. Violent acts, such as the failed coup attempt on January 08, 2023, demonstrated the power that the extreme right holds in the country.

Despite the difficult transition and efforts to rebuild state bodies, the only bastion of extremist resistance within the Federal Executive Branch is, today, beforehand, the Central Bank. The ultraliberal vision for some and neoliberal for others is reminiscent of the old government and the ideology of the former economic representatives. For them, the State's action on income distribution, production and human rights are not well accepted and contain what embarrasses the competition of all against all underpins the common vision with the agents of the financial market.

The current management of the Central Bank, therefore, despite the defeat of the reactionary project, hinders the efforts of the new government to change the direction of public policies in favor of the resumption of growth, the formation of national capital and attention to the poorest. Otherwise, containing inflation appears as a legitimate excuse to curb the social-democratic policy that promotes the State as a promoter of capital accumulation, technological progress and the distribution of the fruits of economic growth. And the ruse works.

The powerful media and big capital, notably banking and finance, applaud the “soberness” and the “technical profile” of the Central Bank, despite the worrying and declining figures for the economy. Influencers and supporters sympathetic to the previous government criticize, on digital social networks, the poor performance of income, employment and production expected for 2023 and, probably, 2024. The population, finally, suffers the inhuman effects of a premeditated credit crisis and already formed that may worsen due to the international banking turbulence.

In summary, the pressure on the liquidity of the economy, through high interest rates for prolonged periods, changes the expectations of economic agents who, therefore, modify their investment decisions, delaying technological progress and economic growth, further harming productivity, family income and the competitiveness of the economy. The exception is the agricultural and extractive activities that have, in the direct exploitation of nature, their gain.

Otherwise, unemployment and poverty are contracted for the long term and only primary activities for export prosper, favoring the reprimarization of the Brazilian economy. Inevitable, then, that in an urbanized, ultra-unequal country with a large number of poor youth, there is growing disappointment with the government and distrust of its policies. Such delegitimization allows the emergence of the “savior of the homeland” who, in the next elections, promotes himself with speeches full of anti-politics, falsely opposed to the elites and violent, simulating hatred of the injustices of everyday life. In other words, an environment conducive to the return of the extreme right to power.

This is exactly the risk faced by Brazil today: the return of the extreme right, an authoritarian, racist, misogynistic, hierarchical, disloyal political force anywhere in the world and, in Brazil, surprisingly anti-national. A huge challenge that was born and exists because there is an economic crisis planned to keep the economy under pressure, generating unemployment, poverty and social dissatisfaction. This is the real problem to be faced and it seems unnoticed by the majority of citizens.

In view of this, it is necessary to immediately highlight another fact that is also absent from the public debate: if the current scenario of macroeconomic crisis puts the future of the country at risk, the government today, unlike in the past, has significant room for maneuver capable of avoiding the intentional aggravation of problems. In other words, the economy – and this may surprise some – is exactly where there is more space, instruments and circumstances to overcome the immediate challenges posed.

First, there is significant idle capacity in the economy, notably the labor factor. This means that there is machinery, commercial spaces, technologies and skilled labor available, waiting for signs of recovery in demand so that they can be used again and start producing, generating income which, in turn, results in new demand which, in turn, Consequently, it stimulates the creation of new and greater production. The scenario of stagnation and lowered expectations, markedly by the credit crisis and lack of liquidity, however, lead to the maintenance of closed doors and continues to postpone and then cancel investment decisions. Behind this is, to a large extent, the highest real interest rate on the planet, that is, the Brazilian interest rate defined by the Central Bank.

Even under the heel of the monetary authority, the Federal Government has instruments, more or less effective, to circumvent the intentional economic slowdown. Hurriedly, for example, supported by consolidated economic theory, public investment programs in sectors such as civil construction and infrastructure tend to respond quickly and multiply results due to both the rapid absorption of labor and the installed capacity of national construction companies.

The interesting thing is that these public investments are not capable of generating inflation or, in fact, raising the public debt risk. In the case of inflation, its current level observes the same pattern experienced by the world in times of war and after a pandemic that dismantled several global value chains. The problem is supply and not demand. If there is public investment, raising demand, it is much more likely that companies' fixed costs will be reduced and gains of scale lost with the high idle capacity and the recent postponement of investments will be recovered. That is, public investment will raise productivity and not increase inflation rates.

“But it will lead to an increase in public debt”, say liberals and financial market interests. Yes it is true. Without anything new, however, it is useful to remember that the important ratio for the financial market itself is the public debt ratio divided by the value of GDP (debt-GDP ratio). And as public investments will quickly boost economic growth, due to the present idle capacity, it is expected that the “feared” debt-GDP ratio will fall, increasing the federal government's credit security in the eyes of savers, contrary to ultraliberal fears.

Furthermore, one must never forget that the majority of Brazilian public debt is denominated in national currency, that is, currency whose issuance is controlled by the government, especially by the Central Bank. It is, therefore, an impossible situation of insolvency on the part of the Treasury. If the fear is that the debt implies a “wasteful” State, whose bill will be collected in the future, just remember that this is a situation of economic crisis, whose positive response is immediate to the increase in demand, which recovers the GDP and raises the tax collection to finance public spending, including debt service.

Liberals in general can also say that, unlike decades ago, the Brazilian economy is now much more open to the outside world and production depends, more than ever, on imported components, parts and equipment. Thus, raising production in the face of an international market with restricted supply will imply greater inflationary pressure and, therefore, may mean a Pyrrhic victory, “forcing” the ideological Central Bank to raise interest rates to contain the acceleration of inflation. This argument, however, does not hold up on first examination. It is not new that Brazil has foreign exchange reserves capable of coping with years of trade deficits with the outside world.

The condition is privileged in Latin America and allows the country to dare to resume its economy, recovering essential sectors, employment and income without putting pressure on the exchange rate and, therefore, on inflation. With this, once again, private costs tend to be reduced due to the use of capacity and gains in scale, forming positive expectations that will result in investments capable of raising the competitiveness of strategic sectors of the economy. The natural result, added to diplomatic competence, is an improvement in the trade balance in the medium term, long before putting foreign currency wealth at risk.[v] The fear of financial analysts, once again, is unfounded, even less in the face of an external crisis that creates opportunities for a growing economy to compete and win markets.

It is incredible that fears (or interests?) still outweigh the perception of the room for maneuver available in the national economy for the country to grow again and quickly. In addition to what Brazil already has, in the international field, interesting commercial and technological partnerships have the potential to change the status of the national industry and revitalize, soon, with investments and technology, Brazilian demand and sales abroad.

China is, at this moment, making a Herculean effort to expand its production chains and reposition itself, at all times, geopolitically. The interest of the Asian giant in Latin America and, of course, in Brazil, is undeniable in the field of industrial cooperation. Attracting the attention of the East and “making the West jealous” have the power to provoke investment in chosen sectors with the greatest offset technology possible and widely assimilated by the scientific park already built in Brazil. None of this is inflationary or raises the public debt without generating a rapid acceleration of GDP.

They are very quick examples, already known and with different derivations and modulations. All with the objective of affirming that the restriction to growth in Brazil is not economic, but political. There is resistance, for publishable and non-publishable reasons from well-known social groups, to changes in the direction of economic management and attention to the interests of society as a whole. Apparently it is politicians from non-ideological parties, business associations, big capital, lobbies and traditional media, the force resistant to change, progress, income redistribution and state protection. It is an old Brazilian problem and, as always, decisive for the future of the country as a nation.

Its overcoming requires the government to move in the direction of economic growth and income distribution to legitimize itself without the reaction being articulated to the point of making a national project of collective progress unfeasible. If the winners of the social struggle throughout Brazilian history have chosen, until today, to keep the country in underdevelopment, the current crisis can mean both continuity and submission to underdevelopment, and opening a door in favor of a generous project of nation.

The problem, then, is, in fact, political and can be summarized as: how to defeat the reactionary forces, making room for planning, projecting and, finally, realizing another future, more just, dignified and fraternal for the generations to come?

*Ricardo LC Amorim, he holds a doctorate in economics from Unicamp.


AMORIM, RLC The Levy Plan and its predictable (un)success. Le Monde Diplomatique Brazil, no. 95, p. 4–5, Jun. 2015.

AMORIM, RLC; OLIVEIRA, T. Economic policy, neoliberalism and the labor market in Brazil (2015-2021). RBEST Brazilian Journal of Social and Labor Economy, v. 4, p. e022009, 10 Nov. 2022.

BRAZILIAN CENTRAL BANK. macroeconomic data. SGS (Time Series Management System). [Sl: sn]. Available in: . Accessed on: 3 May 18. , 2021 Mar. 12

GALLEGO, ES (Org.). Hate as politics: the reinvention of the right in Brazil. 1st ed. São Paulo: Boitempo, 2018.

IPEA. Fiscal outlook: 2022 highlights and perspectives. , Conjuncture Letter., no 58. Brasilia: IPEA, 1st quarter 2023. Available at: . Accessed on: 2023 Mar. 02.

MIGUEL, LF Democracy in the capitalist periphery: impasses in Brazil. Belo Horizonte, MG: Autêntica, 2022. (Essays Collection).

PIRES, MC; BORGES, B.; BORÇA JR., G. Why has the recovery been the slowest in our history? Brazilian Keynesian Review, v. 5, no. 1, p. 174–202, 21 Sept. 2019.

SERRANO, F. Interest rates, exchange rates and the inflation targeting system in Brazil. Political Economy Magazine, v. 30, no. 1, p. 63–72, Mar. 2010.


[I] In the long run, conditions change and governments can and should prevent some bottlenecks, such as grain and fuel.

[ii] The statistical correlation between the 'SELIC accumulated in the annualized month' (variable 4189 of the Central Bank Time Series) and the 'Average interest rate on credit operations' (variable 20714 of the Central Bank Time Series) is 0,83 for monthly data starting in March 2011 and ending in January 2023.

[iii] Financial market interests in the application of orthodox monetary and fiscal policies will not be discussed here.

[iv] For example, the Federal Government has already realized the danger represented by the Expenditure Ceiling and the Fiscal Responsibility Law together, as they are in effect, since they have a pro-cyclical nature, going against one of the basic objectives of economic policy, which is precisely to avoid sharp fluctuations in production and income of the country. See, Oliveira and Amorim (2022).

[v] It is interesting to remember that this is a new situation in Brazil, since historically external crises have always hit the country when the coffers were empty of foreign currency.

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