Dollar high may nullify measures to make fuel cheaper

The measures announced by the federal government to try to lower fuel prices may be partially canceled out by the negative reaction of the market, which is already reflected in the exchange rate, interest rates and country risk measures.

The assessment is that the federal government is giving up a significant volume of resources to promote a temporary price reduction, which will not fully reach the consumer and which does not favor the poorest.

In addition, the proposals harm state finances, which should lead to a judicialization of the issue.

President Jair Bolsonaro (PL) has promised to waive federal taxes on gasoline and ethanol. He also announced that the government will reimburse states that accept zero ICMS rates on diesel and cooking gas by the end of the year. The impact of the measures is estimated at around R$50 billion. Part of the money should come from the privatization of Eletrobras, says the government.

In reaction to the package, the dollar advanced 1.41% on Tuesday and 0.30% on Wednesday (8), quoted at R$ 4.8890.

“We need to have a minimum of planning to not burn revenue for nothing, in addition to having a rebound effect: that the increase in the perception of risk and uncertainty ends up causing more inflation”, says Juliana Damasceno, analyst at Tendências Consultoria.

For her, it makes no sense to give up revenue to relieve all consumers, including high-income consumers, since this money could be directed to the poorest, through the expansion of Auxílio Brasil beneficiaries, an increase in the gas voucher or a voucher policy for truck drivers, taxi drivers and app drivers, for example.

“We know what happens when the government controls prices. There is a risk of shortages, it cannot be done indefinitely and inflation returns with full force, as happened in the Dilma administration.”

Economist Marcos Mendes, researcher at Insper and columnist for Sheetrefutes the government’s arguments that there is surplus revenue to fund the measures and that the poorest will benefit the most.

It also states that only rich countries have used a significant volume of resources to pay for the increase in fuel and energy prices.

“It is a bad allocation of public resources. It will temporarily reduce the price of fuel, it will not change the dynamics of inflation. It is far from being something for the poorest. And I don’t see a middle-income country doing what Brazil is doing.” doing”, he says.

He says the increase in revenue that will be used to fund these measures is temporary and could be better used to subsidize only the poorest or reduce public debt, which would result in lower interest rates. The same happens with the dividends from Petrobras and the resource from the privatization of Eletrobras, which will be spent on current expenses.

Mendes says he also sees the risk of judicialization of the amount to be reimbursed to the states, as has already occurred in the past in relation to the Kandir Law.

Lawyer Fernando Zilveti also expects a judicialization and says that some proposals are unconstitutional, as it is up to the states to define the ICMS rate.

A dispute in the Judiciary, however, will have political costs for both governors and the Federal Supreme Court (STF), while at the same time bringing dividends for President Jair Bolsonaro, assesses the tax expert.

“It is an act without any planning, neither legal nor fiscal. There is a deliberate movement to take force from the states. You have an unconstitutional measure, which does not stop standing in the Supreme Court”, he says.

“He [Bolsonaro] is leaving all this to go to court and put the bill with the Supreme Court.”