Geraldo Alckmin tried to lower the boiling point of this Thursday (10) that was unfortunate for the country’s finances, the so-called “nervous market”. Others from the transitional government and Luiz Inácio Lula da Silva decided to spread more embers.
They decided to fight with reality, with the facts of financial life and with recent allies on the broad front, which may even have implications for the formation of a coalition in Congress and in society. There are means and time to repair the damage. It may just be a scar. Or it could be an onset of gangrene.
What is “fighting reality”? These collapses in the financial markets mean that the owners of the money start to charge more to keep their funds in reais, in public debt bonds (loans to the government) and, by extension, in company shares and other domestic assets. They charge more because of the increased risk of inflation, general financial turmoil and low growth, in short.
The real depreciates (with extra inflation risk). Interest rates go up. The government has to pay more to finance its deficit; the private sector will pay even more to raise capital to invest, credit becomes more expensive. It is an elementary description of the problem, which goes much further.
This financial degradation undermines economic growth, without which there will be no more work. Labor income equivalent to 60% of the total income of the poorest 20% (and much more for other income levels).
Therefore, poverty will not be reduced without more work, mainly. “Nervous Market” is a silly little joke about a very real problem.
The Lula command wanted to sugarcoat what Lula said: attacks on the government’s deficit and debt control, which would be an obstacle to the payment of the “social debt”. “It’s not quite like that”, since Lula has already shown that he is capable of doing both in his administrations.
Suppose this is it. So, what Lula has been saying would be correctly understood if there was already a finance minister or a credible and functional economic council.
Lula made his speeches demeaning “such fiscal stability” at a time when he is discussing a gambiarra in order to alleviate poverty and avoid electoral fraud with serious political consequences. The gambiarra is almost accepted. The problem is that there is no program to say how the future electrical installation will be done reliably. That is, the creation of some method to contain the endless growth of debt: a “Lula ceiling”.
The immediate problem is said to be the fact that expenditure on Bolsa Família is placed outside the expenditure ceiling, even worse if permanently outside the ceiling. But Michel Temer’s roof was degraded by the government of darkness (2019-22), it needs reform and there is a way to do it, as even Lulas say. The biggest problem, therefore, is to know how the new “fiscal rules” will be, which can be several, some more, some less, convenient for the Brazilian situation and for the country’s chronic problems.
If all goes well, it will take months to define the new “fiscal rule”. So that the wait is not tumultuous, it is necessary to have an economic program, which would be evidenced in the choice of a reliable, capable economic team with political backing, from Lula and the coalition.
The plan needs more: changes in taxes, in public administration and facilitation of private investment, to keep to the strict minimum. Once the patient is stabilized, it is possible to invent new and intelligent forms of state intervention. But without a deficit and debt containment plan, it won’t work. To be kind.
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