Carlos Alberto Sardenberg
There is no doubt: the Brazilian economy is in a solid process of recovery that began last year and it will be even stronger in 2018. The change is dramatic: the country has exited a perverse combination of recession/high inflation/astronomic interest, and is now in a virtuous movement of growth, around 3.5% this year, inflation between 3% and 4% and interest at the lowest level in the era of the Real.
There is no doubt: Brazilian politics does not show any signs of recovery, if recovery is understood as the formation of a government with a consistent majority to make the reforms that will balance the public accounts and improve the business environment. There is no confidence in the ability of the current government to adopt new and important measures; and the formation of a government that will be elected next October is uncertain, very uncertain.
For how long will it be possible to maintain this disparity? Or, to put it another way, will social and economic forces be sufficient to impose a political agenda for reform? Or, on the contrary, will the inability of the political system to contain deficit and public debt impede economic recovery?
There is an optimistic answer. The following: Temer’s administration took over and has worked under precarious conditions, with an unprecedented level of rejection by the population. In the meantime, the economy has clearly improved. So, why can’t it continue this way, with this detachment?
Because the trick has exhausted. The trick was the formation (Temer’s merit) of a super economic team, with respected names in the national and international markets. And this team has actually managed to advance in crucial ways. For example: the limitation of public expenditure by establishing a constitutional ceiling, in budget expenditure; the labor reform; the purging and reorganization of the state-owned enterprises (Petrobras and Eletrobras, for example); the containment of public banks, subject to prudential rules; the magnificent management of the monetary policy by an independent Central Bank in practice; variable privatizations and concessions.
All of this in the midst of the political crises and the avalanche of the Car Wash Operation.
A miracle, it can be said. And miracles are unique.
The political process has run aground at the most important moment, the voting on the Pension reform. It is not an exaggeration. The country, the economy and society are not going anywhere without a strong change in the rules for retirement.
Just two figures, so as not to annoy the reader: the federal government spends on education the equivalent of 5.4% of the GDP; on retirements and pensions, nothing less than 14% of the GDP – expenditure of an old and rich country, where Brazil is poor and, still young, but ageing.
That is why viaducts fall in Brasília and criminality dominates Rio de Janeiro. It’s no exaggeration. The government of the Federal District, and the national, spends more every year on personnel and pensions. There is no money for anything else, including the maintenance of viaducts and other urban installations. Rio de Janeiro was rich at one point: with barrels of oil at 150 dollars, royalties pouring in to the treasury of the state government and of many city halls, where is all the money?
Just one example: officers of the Military Police of Rio are among the best paid in the country and retire with less than 50 years of age. And it is perhaps the worst MP in the country.
Therefore, this is where we are: the pension expenditure, in continuous growth, causes the reduction of all other expenses and investments.
If this does not change, economic recovery is not tenable. Signs of this are showing: short-term interest rates are falling (6.75% per year), but in future markets, the National Treasury bonds maturing from 2019 are negotiated with rates above 10%. But, they are negotiated, because there are buyers and sellers.
That is, no imminent catastrophe is expected, no collapse of public finances. The current recovery itself – cyclical and a consequence of sound policy – makes things easier, as it increases influx from the entire public sector.
In addition, the world economy, in coordinated growth, has helped -considerably so. Considering the demand for food which will come increasingly from China and India, the Brazilian agribusiness, with all its ramifications, has the capability to continue saving Brazil.
Industry still has more capacity and can grow without many investments. Employment and consumption are returning without generating inflationary pressures. Finally, there is still hope, there are good deals in progress in the processes of privatization and concessions, from oil to power transmission lines, and even in airports.
And what if a populist president, whether right or left, is elected to office?
That is the point: the electoral campaign that is approaching will be the main economic indicator.