Opinion – Solange Srour: The country of uncertainty will always be the country of low growth

As if the challenging scenario of 2022 was not enough — an election year that will be marked by an economy in clear deceleration, high inflation and rising interest rates —, the prospects for the medium term are also shaken. The country continues to change rules opportunistically, without reflecting on the long-term consequences, and increasing the already enormous legal uncertainty. And, thus, we create barriers to investment, compromising potential GDP.

Once again, the credit market is the target of bad ideas. After we had escaped the project that capped the interest charged by banks and fintechs (see my column “Opening Pandora’s Box” from May 2020) — a project that, if completed, would cause loans to shrink and become more expensive — we are now facing a new threat that could bring the same consequences: the regulation of the super-indebtedness law.

Approved in July, the law establishes that financial institutions must make the granting of credit or its renegotiation conditional on the preservation of a minimum income — the so-called existential minimum — so that the creditor does not commit its basic expenses to the detriment of the payment of debt service.

The rule can be counterproductive. What should be considered a vital need? For example, clothing is considered an essential item, but what should the limit be? On the one hand, borrowers, supported by a concept that is difficult to be precise, will have incentives to default, thus increasing the cost of borrowing.

On the other hand, credit providers, as they do not have complete and immediate information about their customers (such as, for example, the amount of non-financial debt), will reduce their offer precisely for low-income people, whose access to loans is already smaller. Another wave of judicialization will be created with the law.

Another item that is always object of unsubstantiated proposals is the price of fuel. Earlier this month, the Senate Economic Affairs Committee approved a bill to create a program to stabilize the price of oil and oil products (PL 1.472/2021). The text determines that the Executive regulates the use of price bands, defining the frequency of readjustments and compensation mechanisms. To finance such a mechanism, a tax on oil exports was created.

Among the principles of the planned fuel policy are the protection of consumer interests, the reduction of external vulnerability, the reduction of domestic price volatility and the reasonableness of domestic prices.

One of the problems with Petrobras not following international parity is the fact that Brazil is not self-sufficient in fuel production, despite being a major crude oil exporter. We depend on fuel imports to meet domestic demand. However, even if this is not the case, the price of any good must reflect its scarcity relative to demand, at the risk of creating a shortage situation. There are several examples in the history of subsidized prices that ended up generating this situation.

Interventions in Petrobras’ pricing policy could deconstruct the best business environment generated since 2017. With the proposal of bands, we put at risk the attractiveness of investments in refining and logistics infrastructure on the eve of the second round of bidding for the excess volumes of the transfer of rights scheduled for the next 17th. This is what we can call destruction of value!

To make matters worse, the new export tax alters the results expected by operators of blocks acquired in auctions that have already been held. Intervention in prices increases legal uncertainty, also impacting the expectation of return on future investments. It is the country that impoverishes, as it attracts fewer resources than it could. Our real interest rates rose sharply, and the reason almost always pointed out is the lack of a fiscal anchor. However, the business environment is critical for country risk to fall.

Good intentions are not enough when proposing new rules: it is necessary to assess the challenges and impacts of their implementation. Having well-defined legislation —and one that doesn’t change according to the convenience of the moment— is the first step in a virtuous cycle of growth.