By HENRIQUE BRAGA e GUSTAVO MELLO*
The post-pandemic that is taking shape from now will not only be mourning the dead due to COVID-19 and dismay due to high unemployment and the economic recession.
We are going to two months of social isolation in Brazil due to the Covid-19 pandemic. There are now more than 20 deaths. In this context of profound public health crisis, we have so far two sets of economic measures announced by the government. The first set includes both the release of the emergency basic income of 600 reais for precarious workers (aid available for up to two people per family or 1.200 reais for single mothers)[I] regarding measures to suspend the employment contract and to reduce working hours and wages for formal employees in the private sector.[ii] The second set comprises measures of financial assistance to capitalists – that is, to representatives of capital, whose main form is the large financial-productive corporations, which articulate representatives of a smaller volume of capital. According to the Central Bank of Brazil, this second group of measures was designed to “offer special conditions so that financial institutions can roll over the debts of the sectors affected by the crisis, monitoring the credits that leave the financial system, with the aim of to avoid possible contagions.[iii]
Among them, the most recent measure is Constitutional Amendment No. 106, enacted by the National Congress on May 07 of this year. Popularly called the “War Budget PEC”, it brings a series of devices to “liberate” the spending capacity of the Brazilian State. With regard to monetary policy, the following excerpt calls attention:
Art. 7 The Central Bank of Brazil [BCB], limited to dealing with the national public calamity referred to in art. 1 of this Constitutional Amendment, and with validity and effects restricted to the period of its duration, is authorized to buy and sell:
I – securities issued by the National Treasury, in the local and international secondary markets; It is
II – assets, in national secondary markets within the scope of financial, capital and payment markets, provided that, at the time of purchase, they are classified in a credit risk category in the local market equivalent to BB- or higher, conferred by at least least 1 (one) of the 3 (three) largest international risk rating agencies, and reference price published by a financial market entity accredited by the Central Bank of Brazil.[iv]
The purchase of financial securities by the BCB follows the line of monetary policy suggested by the International Monetary Fund (IMF) in a recent analysis on the economic measures necessary to face COVID-19.[v] This economic policy comes in addition to those measures announced on March 23 of this year, which would release, according to the BCB, 1,2 trillion reais[vi], through the reduction of credit requirements in several segments and, most importantly, the release of “loans backed by financial bills guaranteed by credit operations” that could reach the sum of 670 billion reais. Faced with this set of measures, the question arises: would they be sufficient to face the disarticulation of the production of goods catalyzed by social isolation?
To answer this question, we must understand how the operations proposed by the BCB work. To understand EC 106, we must differentiate between primary and secondary markets for financial securities. While in the first the negotiation takes place between the issuer of the financial security and its buyer, carrying out operations of issuing new securities or repurchasing securities already in circulation, the second includes the negotiation of securities already issued, not involving its issuer. An operation in the primary market occurs, for example, when the BCB negotiates new federal public securities with private banks (its dealers), while the trading of these securities between banks and other “economic agents” characterizes an operation in the secondary market.
As of EC 106, the BCB will be able to operate in the secondary market, from which it was excluded until then. In this case, it can act not only by buying financial securities of public origin (I), but also buying such securities of private origin (II). An operation of this type means that the Central Bank monetizes bets on future production and consumption, so that large corporations will recover bets given as lost on their balance sheets, alleviating those in deficit positions. For example, companies holding “a) non-convertible debentures; b) real estate credit bills; c) certificates of real estate receivables; d) agribusiness receivables certificates; e) commercial notes; and[/or] f) bank credit notes;”[vii] can have these securities purchased by the Central Bank, as all are traded on the secondary market. This could mean the recovery of around 1 trillion reais in “bad credits”, which were already lost[viii].
Thinking about the recovery of capital accumulation, the fragility of this mechanism lies in the monetization of debts without demanding that the favored sectors allocate these resources in the necessary means to face the economic crisis. It should be noted, in particular, that there is no mechanism to guarantee that small and medium-sized capital will benefit, and it is precisely they who are responsible for employing, formally or not, the most vulnerable sectors of the Brazilian workforce. In addition, there also seems to be no guarantee that the entire production system will be articulated to handle the production and distribution of medical supplies, research activities and basic livelihoods. Such a task, as already pointed out in this space at the beginning of this crisis,[ix] it is unavoidable in this critical moment we are experiencing, which, by all indications, will last for a few months and whose effects will be felt for years in the Brazilian economy.
It is important to point out that this form of recovery of capital accumulation has proved to be insufficient because there is no evidence that the measures adopted on March 23 are having the effect predicted by the BCB. Although lending to legal entities grew by 60% in March, jumping from 140,6 billion reais to 224,9 billion reais, there are mixed signs that small and medium-sized companies are having difficulties borrowing with private banks.[X] It should be noted, for example, that of the 40 billion foreseen to help small and medium capitals with the payment of their workers' wages, only 1% was released due to the wrong design of the measure, and this observation is made by different groups of businessmen.[xi] With the economic situation of uncertainty regarding the future gains of invested capital, it is not surprising that financial institutions preserve the monetized resources with them, jamming the circuit of capital accumulation. Therefore, it has been shown to be a mistake to bet both on capital accumulation and on its random allocation of resources as a means of dealing with the effects of the crisis.[xii]
From the point of view of monetary policy, facing the crisis involves using available public banks, whether from the Union or the States, to finance the production and distribution of essential means to overcome one of the worst economic crises we will face in our history. EC 106 would be better suited to face the crisis if it applied, for example, a 100% rate on monetized bets, using these resources to finance, on the one hand, a broad credit program aimed at small and medium capital, the zero interest rate and with a grace period of at least 12 months to repay the loans. On the other hand, it would be appropriate to use these resources to reorganize all sectors of the economy, promoting industrial and services reconversion – which is not done overnight, it is good to remember –, towards the essential sectors to face the pandemic. This without neglecting the safety of workers and the means necessary for care, hygiene, food and housing activities. It is evident that this set of measures would have as one of its fundamental tasks to guarantee income and consumption capacity for the large contingents of the population that have already lost and will still lose their jobs – formal and informal – and have their sources of income compromised. Therefore, the provision of an emergency basic income would have to be transformed into a universal basic income and its value increased; on the other hand, the state policies for maintaining employment would have to be deployed and the measures that led to wage cuts and suspension of contracts would have to be suspended.
In these terms, big capital could effectively contribute to softening the effects of the crisis, since it would have its command power over labor directed to where society needs it at that moment, instead of having assured the receipt of its property rights over the future – a future on which they gambled deliberately as well as wrongly, and therefore should be solely responsible for their situation[xiii]. However, EC 106 and the measures of March 23 seem to fulfill another role. They are providing large financial-productive corporations with[xiv] the certainty that the crisis will be another great business opportunity. By the way, the statement by Roberto Setubal, one of the owners of Banco Itaú, is crystal clear in this regard: historically, he says, “Itaú went through the crises very well. We bought many banks in times of crisis”[xv]. Furthermore, such security leaves no doubt as to who will pay for the crisis, since “The peak of the disease has already passed when we analyze the middle class, upper middle class. The challenge is that Brazil is a country with a lot of community, a lot of favelas, which ends up making the whole process difficult”[xvi], words by Guilherme Benchimol, president and founder of XP Investimentos.
In view of this situation, the post-pandemic that has been taking shape since now will not only be mourning the dead due to COVID-19 and dismay due to high unemployment and the economic recession. It also seems that the post-pandemic will entail an increase in the centralization of capital, an increase in inequalities that has already been advancing significantly since 2015[xvii], and an advance in extermination practices for those who prove to be useless to capital[xviii]. In this scenario, it is worth claiming another future, in which, among other things, we should not work continuously more so that others, committed to negotiating our future work, would have their way of life guaranteed. Perhaps it is the case that we secured another way of life for ourselves, in which production, distribution, exchange and consumption ensured a healthy present. Shall we start thinking about that future?[xx][1]
*Henrique Braga e Gustavo Mello are professors at the Department of Economics at the Federal University of Espírito Santo (UFES).
Notes
[I] MINISTRY OF CITIZENSHIP. Aid of R$600. Available in: https://www.gov.br/cidadania/pt-br/servicos/auxilio-emergencial/auxilio-emergencial.
[ii] PANDEMIC AND PRECARIOUSNESS: THE NATURALIZATION OF SOCIAL DRAMAS. Available in: https://blog.ufes.br/grupodeconjunturaufes/2020/04/20/607/.
[iii] Measures to combat the effects of COVID-19. 23 Mar. 2020. Available at: https://bit.ly/3alirHH.
[iv] OFFICIAL DIARY OF THE UNION. CONSTITUTIONAL AMENDMENT No. 106. May 07, 2020. Available at: http://www.in.gov.br/en/web/dou/-/emenda-constitucional-n-106-255941715
[v] COVID-19 Crisis Poses Threat to Financial Stability. Available in: https://bit.ly/2XNYHd5.
[vi] Measures to combat the effects of COVID-19. 23 Mar. 2020. Available at: https://bit.ly/3alirHH.
[vii] In the first version of EC 106, these were the assets listed for purchase. See: FEDERAL SENATE OF BRAZIL. Proposed Amendment to the Constitution No. 10 of 2020. 17 Apr. 2020. Available at: https://legis.senado.leg.br/sdleg-getter/documento?dm=8096966&ts=1588942429796&disposition=inline
[viii] View: Resumption of the economy can unlock a portfolio of R$ 1 trillion in 'rotten credits'. Available in: https://www.infomoney.com.br/economia/retomada-da-economia-pode-destravar-carteira-de-r-1-tri-em-creditos-podres/.
PEC 10 Covert laundering of trillions of rotten papers accumulated in banks for 15 years and you will pay the bill. Available in: https://auditoriacidada.org.br/conteudo/pec-10-acoberta-lavagem-de-trilhoes-de-papeis-podres-acumulados-a-15-anos-nos-bancos-e-voce-pagara-a-conta/
Private assets that BC can buy if PEC is approved add up to R$ 972,9 billion. Available in: https://www.moneytimes.com.br/ativos-privados-que-bc-pode-comprar-caso-pec-seja-aprovada-somam-r-9729-bilhoes/.
[ix] Note on the economic and social impacts of COVID-19. Available in: https://blog.ufes.br/grupodeconjunturaufes/2020/04/02/nota-sobre-os-impactos-economicos-e-sociais-da-covid-19/ .
[X] The clash between companies and banks for access to credit in the crisis. Available in: https://www.nexojornal.com.br/expresso/2020/04/01/O-embate-entre-empresas-e-bancos-pelo-acesso-ao-cr%C3%A9dito-na-crise.
[xi] Credit line for the payment of wages has only 1% released to companies. Available in: https://economia.estadao.com.br/noticias/geral,linha-de-credito-para-o-pagamento-de-salarios-tem-so-1-liberado-a-empresas,70003296117.
[xii] Saving GDP or Lives? Available in: http://brasildebate.com.br/salvando-o-pib-ou-vidas/.
[xiii] In the words of Roberto Setubal: “[…] in capitalism there is no guarantee of return or stability, that is life”. Source: “It is not possible to save everyone, some sectors will adjust”, says Setubal. Available in: https://www.infomoney.com.br/negocios/nao-da-para-salvar-todo-mundo-alguns-setores-vao-se-ajustar-diz-setubal/.
[xiv] Let us remember that since the mid-1970s, the large modern company has had its production, distribution, exchange and consumption articulated with the international financial system, in such a way that the modification of its production model to the "prompt delivery" with plants spread all over the world the globe occurred because it could freely move its capital in monetary form – especially with the so-called offshore zones.
[xv] “It is not possible to save everyone, some sectors will adjust”, says Setubal. Available in: https://www.infomoney.com.br/negocios/nao-da-para-salvar-todo-mundo-alguns-setores-vao-se-ajustar-diz-setubal/.
[xvi] Peak of Covid-19 in the upper classes is over; the challenge is that Brazil has a lot of favelas, says president of XP. Available in: https://www1.folha.uol.com.br/mercado/2020/05/brasil-esta-indo-bem-no-controle-do-coronavirus-e-pico-nas-classes-altas-ja-passou-diz-presidente-da-xp.shtml.
[xvii] An even more unequal country. Available in: https://piaui.folha.uol.com.br/um-pais-ainda-mais-desigual/.
[xviii] Pandemic democratized power to kill. Available in: https://www1.folha.uol.com.br/mundo/2020/03/pandemia-democratizou-poder-de-matar-diz-autor-da-teoria-da-necropolitica.shtml.
