Neither the neoliberal obsession nor the developmentalism of the past, says Lara Resende

One of the formulators of the Plano Real, which brought down hyperinflation in the 1990s, economist André Lara Resende came to be treated by many of his peers as an outsider in the nest after he became an acid critic of conventional economic thinking.

For him, dramatic episodes such as the 2008 international financial crisis and the coronavirus pandemic showed that even countries like Brazil are able to take on debt to finance their spending in certain situations without losing control over the economy.

He returns to the charge in “Ideological Straight Shirt”, which hit bookstores this Friday (3). It is the fifth in a series of volumes in which he criticizes the assumptions of his orthodox colleagues and defends their revision. More concise, it is also the most accessible to the lay public.

The economist considers that the Central Bank’s decision to raise interest rates to curb inflation, which last year exceeded the target set by the government, was wrong, and defends the resumption of public investments as a way to rebuild the economy.

Lara Resende has been in informal contact with advisors to former President Luiz Inácio Lula da Silva (PT), and has recently met with former governor Geraldo Alckmin (PSB), who will be running as deputy on the PT ticket in the presidential campaign. this year.

Coordinator of a group of specialists at the Brazilian Center for International Relations (Cebri), the economist prepared a set of economic policy proposals that should be presented shortly as the group’s contribution to the electoral debate.

What is wrong with economic thinking in Brazil? Macroeconomic theory has been under review around the world for at least ten years, but in Brazil there has been a radicalization of dogmatism, the idea that good macroeconomic policy boils down to balancing the public budget in all circumstances.

Even after the pandemic, when did the government increase spending and circumvent the spending ceiling to face the health crisis? In Brazil, only this model is defended. Just read the newspapers. The curious thing is how they manage to justify this stance and simultaneously defend the increase in interest rates by the Central Bank by 12 percentage points in six months, which increases spending on public debt.

This means transferring income to public debt holders, who are the economy’s surplus agents. It is a deeply concentrating policy, and a startling incongruity. Fiscal responsibility is very important, but it is poorly defined.

Does the spending cap still make sense? I am in favor of a ceiling on current expenses, especially personnel expenses. A ceiling on all expenses, excluding debt service, as we have today, is unwise. He did not contain current expenses, nor demagogic ones, but squeezed the space for investments.

The economy does not function without public investments, in infrastructure, education, health, security. They are complementary to private investments and make most of them viable. But the ceiling completely strangled the state’s ability to invest.

Mr. says in the book that “the elitist and technocratic distrust of politicians in representative democracy prevents the revision of the institutional framework”. Don’t the mistakes of successive governments and the country’s history justify this mistrust? I don’t know if Brazil is exceptional in this. Everywhere in the world there is the problem of the misuse of public resources, the misuse of the very powerful faculty of the State to create credit. Such misuse is a permanent hazard, which must be competently regulated.

But it is not possible to restrict the misuse of public resources simply with laws and formal restrictions. In this the state functions as a company. If it’s made up of essentially corrupt people, it’s no use threatening, imposing restrictions and punishments.

By emphasizing the absence of financial restrictions for the issuance of debt by the government, Mr. doesn’t it end up suggesting that there is no limit at all? Of course there are limits. The debt-to-GDP ratio obviously cannot go to infinity. But the power that the State has to create credit can be put to good use, which occurs when the return on the investment made is greater than the cost of the credit that financed it.

There is no numerical limit that must be respected. Rich countries today have debts in excess of 100% of GDP. In certain circumstances, such as wars and pandemics, indebtedness is necessary to prevent a tragedy. That’s what we saw with Covid.

It is possible to reverse it when the economy reorganizes and returns to growth. Now, if you use credit in an uncontrolled way, for demagogic policies and expenses with no return, in terms of productivity or well-being, then you are being irresponsible.

The book discusses the need for greater coordination between monetary policy, under the responsibility of the Central Bank, and fiscal policy. Does the greater autonomy granted by Brazilian legislation to the BC affect this coordination? This institutional organization of an independent Central Bank, which cannot buy public debt, worked well in the last century, but it is outdated and dysfunctional. It has to be rethought and we are preparing a proposal on that.

The electoral campaign opens space for a review of economic policy like the one that Mr. propose? Those who are looking for a third way have no project. In the economy, they continue to cling to neoliberal platitudes and present themselves as an alternative to the Bolsonarist right, as representatives of true neoliberalism. That way you won’t get anywhere.

We need a project for the resumption of development in the 21st century. It will not come from the neoliberal obsession, which has become completely outdated, nor with the developmentalism of the 20th century. The challenges we need to face are new and enormous.

There is the environmental issue, the need to rethink energy to get rid of fossil fuels, the search for greater social inclusion. The technological revolution, which brings productivity gains, but disrupts employment. This is the discussion to be had.

ANDRÉ LARA RESENDE, 71

Graduated from the Pontifical Catholic University of Rio, he holds a doctorate in economics from the Massachusetts Institute of Technology, in the USA. He was director of the Central Bank in the José Sarney administration, special advisor to President Fernando Henrique Cardoso (PSDB) and president of BNDES (National Bank for Economic and Social Development). He has worked in the financial market for over 30 years. He has previously published “Consenso e Contrassenso” (2020) and “Interest, Currency and Orthodoxy” (2017), both under the Portfolio Penguin label.