In a letter published in the newspaper “Folha de S.Paulo”, 4 economists and former minister Bresser-Pereira rebut Fraga, Bacha and Malan
After Arminio Fraga, Pedro Malan and Edmar Bacha wrote a public letter to Luiz Inacio Lula da Silva (EN) it was the turn of the former minister Luiz Carlos Bresser-Pereira and 4 other economists to publish a text for the president-elect. The new letter, a response to the 1st, states that the idea that spending caps are necessary to maintain fiscal discipline is a “fallacy🇧🇷
🇧🇷The aforementioned economists [Fraga, Malan e Bacha] oppose his commitment to lift the spending cap, as it plays a key role in ensuring fiscal responsibility, keeping inflation in check by ensuring “market” confidence in government policies”, says the text published in the newspaper Folha de S.Paulo on Tuesday (21.Nov.2022).
🇧🇷The idea that the spending cap is key to ensuring fiscal discipline is a fallacy. In fact, the ceiling proved incapable of preventing the government of Jair Bolsonaro (PL) to carry out an expenditure volume of BRL 795 billion in four years and to create new public expenses less than six months before the elections.”, economists argue.
The text is signed by economists José Oreiro, Luiz Magalhães, Kalinka Martins and professor of economics at the Institute of Economics at UFRJ and coordinator of Geep/Iesp-Uerj, Luiz Fernando de Paula. Bresser-Pereira, also a signatory, was finance minister in the government of José Sarney and Administration and State Reform and Science and Technology of the government of Fernando Henrique Cardoso🇧🇷
According to economists, the letter from Fraga, Malan and Bacha has several “misconceptions🇧🇷 The 1st indicated by them is the idea that Brazil pays high interest rates because the State is not seen as a good debtor. In an analysis of the Embi+ (the difference between the interest that a country charges in relation to that charged by the USA), economists indicate that the country risk fell during the Lula government, while the spending ceiling failed to return to the level it was at. in 2010.
🇧🇷The market assessment is clear: the spending cap was not able to reduce the country risk”, they say.
Another mistake, according to them, would be to say that the rise in inflation was the result of the hole in the ceiling in 2021 by the Bolsonaro government. 🇧🇷The increase in inflation was not a phenomenon restricted to Brazil, nor is it due to fiscal imbalance, but rather the result of events that generated a huge supply shock worldwide (Covid-19 pandemic and War in Ukraine).🇧🇷
Bresser-Pereira and his colleagues also criticize the analysis that the ceiling does not impact resources for the social area. According to them, the mechanismimposes a crush” of the budget for social issues. Finally, they defend the creation of a new tax rule for Brazil.
🇧🇷In conclusion, we understand that it is legitimate and feasible to make room in the Budget to facilitate public spending to face the social and economic crisis, which should be combined, when sworn in, with the adoption of a new fiscal rule that combines budgetary flexibility with public debt sustainability.🇧🇷
The Lula government is trying to approve the PEC (Proposed Amendment to the Constitution) to cover the R$ 600 Brazil Aid and the real increase in the minimum wage, promises made by the PT campaign.
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