When he turned 80, Affonso Celso Pastore had the impulse to write a book to gather the notes accumulated over more than 50 years as a teacher, government member, consultant and analyst of the political and economic scene in the country. Two years later, the This week, former president of the Central Bank launches the book Mistakes of the past, solutions for the future: the legacy of 20th century economic policies. Published by Portfolio-Penguin, Editora Schwarcz, with a foreword by economist Marcos Lisboa, it explores history to discover what led Brazil to enter a phase of stagnation in the 1980s. See the main excerpts from the interview.
What was the motivation for writing about economic policy mistakes?
From the end of World War II until the 1980s, Brazil had very strong growth rates, 7.5% per year on average. Brazil is no longer eminently agricultural, it has become urbanized. It had a per capita income higher than that of China, Korea, and was approaching that of the US. From the 1980s onwards, we entered a phase of stagnation. The motivation (for the book) is simple: knowing where we went wrong and what we should correct going forward.
Why was Brazil caught in this slow-growth trap?
It doesn’t have a single cause. The theory of economic development has evolved over time, and in recent years some brilliant economists, like Daron Acemoglu, who is at MIT, have started to look at the reasons why there are countries that grow and others that don’t. He says this: countries grow whose economic and political institutions allow for growth. When they are inclusive and not extractive institutions, countries grow. Part of the institutions are the stakes of the democratic process, such as the Judiciary, the Executive and the Legislative, which have ‘checks and balances’ (checks and balances), and are independent of each other. And part of the institutions are the laws, the rules of the game.
How do they influence?
There are countries that manage to assemble these rules in such a way as to channel society’s efforts towards growth. But there are other countries that get lost along the way, and end up generating economic policies that respond to group interests, private interests, that do not produce the country’s growth. There is no doubt that a good part of the deterioration of our institutions was of a political character. Today, we have several designs in the political system, perhaps larger than those in the past, which are largely responsible for our inability to grow.
The book begins with a chapter on Brazilian agriculture. Why is the sector one of the most productive in the world and our industry is not?
What made the big difference is that we had technological innovations and a tradition of doing research. We managed to do that in agriculture and we never lost.
But the country did not solve the problem of hunger, which increased in the pandemic. What went wrong?
Brazil didn’t solve the hunger problem because we didn’t solve the income distribution problem. Of course, we have had certain attempts to favor the excluded. Bolsa Família was that. But there is a population that is in a level of absolute poverty that is not having the opportunity to grow and improve its perspective. This is the fault of public policy.
Mr. analyzes the episode of the external debt crisis, a historic moment in which he participated. Does the book have a review?
There is a phrase by George Orwell that says that the story is always told by the winners. Fortunately, the winners of that period were the guys who favored free elections. There, I applaud. But they told the story about the debt crisis that was politically interesting at the time. What I show is that there was no formula for doing the negotiation other than how it was done. In 1980, the external debt in dollars was 60% of GDP. When I joined BC in 1983, Brazil’s cash reserve level was less than $2 billion. I had no reservations. A resolution had to be published in the BC that centralized the exchange rate.
Has this sudden stop produced a deep recession?
I am chairman of the economic cycles dating committee at FGV. We date the beginning of that cycle to the beginning of the debt crisis. It was the biggest drop in per capita income that ever happened, a 12% reduction. An extremely long recession. Everything stopped. If there’s a guy who has stopped breathing, you’re going to have artificial respiration, cardiac massage, you’re going to give him oxygen. It’s no use giving medicine for headaches. In the case of debt, the priority was to renegotiate and get new money to have the resources to make the economy work again. I had to navigate this hostile environment with extreme caution. One of the conditions was to produce foreign exchange earnings, it had to produce a strong depreciation of the real exchange rate. Only the economy was indexed and had no anchor because the BC was unable to operate the interest rate. Who operated this was the Monetary Council. I show that this generated a completely out of control inflation, which was only controlled far ahead with the Real Plan.
The book talks about the eternal Brazilian fiscal problem that is still not resolved.
Brazil has a problem that dates back to the 1988 Constitution, which created a series of rights with public expenditure and which, until we had the spending ceiling, grew at 6% in real terms per year. It turns out that there is no GDP growth of 6% in Brazil. Our potential growth is 2%. If expenditure grows at 6% and revenue at 2%, the public debt will continue to grow and become unsustainable. This problem was pushed forward during the Fernando Henrique administration because it generated a continuous tax increase that caused revenue to grow along with the increase in expenditure. However, an increase in load has an economic cost, slows down growth and generates a cost of welfare for the population.
At the end of the chapter, mr. analyzes the political impact on public accounts. How’s that?
With the fact that Brazil has broken up in recent years, it is practically impossible to have a coalition presidentialism that allows us to tackle Brazil’s fundamental problems. It gets stuck in a struggle between parties, which are very heterogeneous.
Is the impasse that the country is experiencing to make room in the Budget for a more robust social program a result of this political problem?
This is one of the dimensions of the problem I am talking about. First, we have a very weak government. He doesn’t have a consistent program and is weak in political support. And we have a Congress that depends on the Centrão, which is not a big center party, but a big conglomerate of physiological parties that, deep down, are looking at a way to minimize damage to their constituencies. This combination is extremely negative from the point of view of the effectiveness of economic policy.
What’s the biggest mistake now?
Brazil is in tatters because Bolsonaro is campaigning 100% of the time. This government should start to rule, which I don’t think it started until now. It’s on campaign.
The information is from the newspaper The State of São Paulo.
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