a myopic debate

George Grosz, Drawing for 'The Mirror of the Bourgeoisie', c.1925
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By PEDRO SALOMON BEZERRA MOUALLEM*

The discussion on the BC's autonomy in the face of political powers, as Lula proposes, should not be restricted to questioning its president's fixed mandate

The Brazilian public debate has forgotten to treat the Central Bank of Brazil (BCB) and its decisions as political issues. For no other reason, press vehicles and public figures reacted with astonishment to President Lula's recent speeches about the Central Bank, on the occasion of the last Copom meeting, which decided to maintain the Selic target at 13,75% pa. Lula's criticisms and the reactions to them have revolved around the Central Bank's autonomy and monetary policy choices in light of the current Brazilian situation. Both questions are poorly positioned and deserve further investigation.

The discussion on the autonomy of the Central Bank in the face of political powers, as Lula proposes, should not be restricted to questioning the fixed mandate of its president. This is because, in fact, the existing autonomy was manufactured in a decades-long process, in which the Central Bank was intertwined with private powers and distanced itself from considerations of political powers. This was done through various expedients.

First, what was called “supervised learning” of internationally disseminated regulatory practices was fundamental, from the interaction with multilateral organizations since the mid-1990s, through which the definition of public policies and regulations became a less domestic matter. . Second, the Central Bank's connection with financial actors has taken place at the level of the autarchy's own bureaucratic body, which has preserved – even in a government with different political orientations – “market-friendly” professional and educational profiles among its directors. Studies on personal networks and “revolving doors” reveal this.

Third, by naturalizing a state action “through the markets”, the Central Bank of Brazil increased the veto points and the infrastructural power of financial institutions. In this sense, its action presupposes some agreement on the part of economic agents to function. To use the example most cited in other experiences, think of the dynamics of inflation targets, in which the Central Bank aims to reach the interest rate target that will supposedly lead to the inflation target through purchase and sale operations of securities on the market – worth it. if, therefore, only indirect instruments for their central objective and that depend on the minimum preservation of market expectations.

Combined, such links normalized a particular form of monetary policy (its purposes, instruments, economic operating models and cause-and-effect relationships) that came to be publicly treated as a neutral and technical matter. Throughout this process, a part of the State became more porous to the controls of financial actors than elected politicians (which, by the way, is not restricted to the Brazilian case). The real autonomy of the Central Bank, therefore, has an older and more complex structure than the debate on whether to exonerate the president of the Central Bank or to revoke Complementary Law No. 179/2021 suggests. A debate on the democratization of the Central Bank must face it.

Moreover, anyone who was astonished by Lula's criticism should follow the increasingly widespread discussions about the limits of autonomy in the face of the unequivocally political roles that central banks have been assuming around the world. No one seriously defends the idea of ​​autonomy for central banks anymore, whose balance sheets were so inflated that it is not possible to disregard their fiscal impact, which started to consider distributive aspects and climate issues in their actions, which recently acquired massive volumes of public debt, and so on. on. A little honest economic journalism would not hurt beyond the moral panic against any “policy intervention in the economy” – on the contrary: I suspect that this has been one of the engines of democratic degradation in the country in the last decade.

As for monetary policy choices, the debate should also go beyond the opposition between cutting interest rates vs. tighten fiscal policy. Not restricting the discussion to domestic politics, what we currently have is a scenario of profound uncertainties and a global economy subject to multiple shocks. There is no easy path for any country in the near future and to plant roots in easy solutions – that is, as if reducing the Selic target could unlock credit and growth by itself or as if the fiscal adjustment eliminated all the variables that pressure inflation in the country – just confuses about the real dilemmas the country will face.

To be up to the current challenges, the public debate should go beyond the pasteurization of a dispute between fiscalists vs. populists, which is nothing more than a fantasy. It should, however, relearn to ask difficult questions, such as: whether the reduction of inflation with recession and unemployment is, in fact, better than some inflation with economic growth; or if there are possible paths of harmony between fiscal and monetary policy for a less mystified governance of currency and credit.

Perhaps the context of a global economy with many simultaneous crises will create the opportunity to relearn how to debate the political structure and purpose of the Central Bank of Brazil. It still hasn't been the case.

*Pedro Salomon Bezerra Mouallem is a postdoctoral researcher at the International Postdoctoral Program of the Brazilian Center for Analysis and Planning (IPP/CEBRAP).

 

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