Financial market welcomes Haddad’s appointments with reservations

The first nominations for the economic team of the elected government of Luiz Inácio Lula da Silva (PT) this Tuesday (13) had quite positive aspects, but also quite negative ones, in the evaluation of specialists.

While the appointment of Bernard Appy as special secretary for tax reform at the Ministry of Finance received much praise, for his knowledge of the subject to lead discussions on changes in the country’s taxes in 2023, the appointment of the former president of Banco Fator , Gabriel Galípolo, for the Treasury’s executive secretary, provoked a more neutral evaluation.

Analysts cited positive aspects regarding his background in the financial market to bridge the gap with financial agents, but with reservations about a more developmental thinking attributed to him.

Appy is seen as the best choice among the appointments made by the government

According to the former Minister of Finance and partner at consultancy Tendências Maílson da Nóbrega, the choice of Bernard Appy to lead the discussion on tax reform was “a 10”.

“It is the best name to carry out this function. There is no Brazilian who knows the subject better”, says Maílson, adding that Appy has dedicated himself in recent years to the development of projects aimed at modernizing consumption taxation in Brazil.

The former minister in the Sarney government says that the secretary has a wide knowledge of the international experience of a number of countries regarding the adoption of taxes along the lines of IVA (Value Added Tax) and has a deep knowledge of the distortions of the tax system Brazilian market, which “are a relevant cause of inefficiencies and the drop in productivity and growth potential in the country”.

Along the same lines, the chief economist at the consultancy MB Associados, Sérgio Vale, says that the nomination of Bernard Appy to lead the discussion on the tax reform was, by far, the most accurate among the announcements made this Tuesday by the elected government to compose the economic team.

“Appy is behind the formulation of PEC 45, which is being discussed in Congress, which deals with the tax issue and was an excellent indication to guarantee the progress of the reform. It was Haddad’s best choice so far”, says Vale.

Bernard Appy’s nomination was also praised by tax lawyers.

“The confirmation of his name is the certainty that the reform will be technical, well done, and that there will be a wide and high-level dialogue”, says Luiz Gustavo Bichara, founding partner of Bichara Advogados.

Marcelo Vicentini, partner at Madrona Advogados and responsible for the firm’s tax area, recalls that Appy is one of the authors of PEC 45/2019, which unifies five taxes (PIS, Cofins, IPI, ICMS and ISS), and that this text must be the basis of the new government’s proposal to simplify consumption taxation.

“Bernard Appy’s nomination is excellent. He knows in depth not only Brazilian taxation, but also international taxation. It is a nomination from someone who is technical and has political influence”, says the lawyer.

For him, the proposal makes the country move towards a more modern, more efficient tax system, more compatible with global systems, which facilitates Brazil’s accession to the OECD.

Guide analysts have reservations about the name of Galípolo, despite its history in the financial market

Vale, from MB Associados, also states that Gabriel Galípolo at the Ministry of Finance’s executive secretary ended up being a more neutral name, which, if not as positive as Appy is for the advancement of tax reform, does not have the negative aspect in the public’s perception. market as Mercadante for BNDES.

“Galípolo does not have experience in the public sector, but this can be acquired quickly, not least because he has experience in the private sector as president of Banco Fator, having participated in important businesses such as public-private partnership projects”, says Maílson da Nobrega, adding that the executive’s history in the financial market can serve as a bridge for dialogue between the government and financial agents.

However, although he came from the financial market, the appointment of Galípolo was not unanimous among financial agents, who foresee a ‘bite and blow’ policy by Haddad at the Treasury.

“Although Haddad’s intention with this is to make Galípolo an intermediary with the financial market, his ideological bias is much more linked to the hard core of the PT than to market economists. Both in his academic works and in public statements, Galípolo showed against some expensive measures for the market, such as the independence of the Central Bank and the maintenance of the spending ceiling”, pointed out the analysts of Guide Investimentos in a report.

Vale, from MB Associados, also says that important positions for the formation of the economic team, such as the secretary of economic policy and the Treasury, remain undefined.

“After today’s announcements, we need more and more names that evoke greater fiscal responsibility, names with a more liberal profile to deal with the fiscal challenge that we will have next year”, he says.

Professor at FGV Ebape (Brazilian School of Public and Business Administration of the Getúlio Vargas Foundation), Augusto Sales assesses that the nominations for the economic team by the elected government disappointed the wing of the market that supported the election of President Lula in the presidential race, such as Arminio Fraga and Persio Arida.

“I think it was disappointing, because it was expected, somehow, some continuity of the agenda that had been adopted by the last administration”, says Sales.

The FGV Ebape professor points out that, although an increase in spending on social protection has been discussed, Brazil is already the emerging market that invests the most in this front, with a percentage of around 12.7% of GDP (Gross Domestic Product) focused on benefits focused on serving the most needy population.

According to the specialist’s calculations, the second emerging country that spends the most in the area is Russia, with around 6.6%. “And we are envisioning expanding this even further”, says Sales.

Mercadante seems to be in Dilma times, says former minister

Mercadante’s appointment to the BNDES, on the other hand, goes in the opposite direction, evaluates the chief economist at MB Associados.

“Mercadante’s nomination represents the uncertainty of what the management of the BNDES and public banks will be like in the new government”, says Vale.

The appointment of Mercadante to the BNDES, says the economist, increases the fear in the financial market about the guidance that will be given to the development bank and public banks Caixa and Banco do Brasil, increasing the chances of them being used to try to stimulate growth through a more incisive role of the State in the economy.

Reflecting the fear of financial agents about the conduct of public banks from 2023 onwards, BB shares closed the trading session this Tuesday with a sharp drop of around 5%, against a drop of 1.7% in the Ibovespa index.

The chief economist at MB Associados adds that, in the BC’s Copom (Monetary Policy Committee) minutes released this Tuesday morning, the monetary authority made it very clear the risk that an expansionist fiscal policy can bring to inflation and to the conduct of monetary policy ahead.

Former minister Maílson da Nóbrega also gives a more critical reading of Mercadante at the head of the BNDES.

“Recent statements by Mercadante about the BNDES give the impression that it is still in the time of Dilma’s government [Rousseff]”, says the Tendências partner, in reference to signs from the PT to promote some flexibility in the rates practiced for long-term financing from the development bank.

Brazil has an increasingly robust system of long-term financing that is the capital market, and the BNDES’ focus needs to remain focused on financing projects that are more difficult to capitalize on from private pockets, such as small and medium-sized companies, defends Mailson.

“I hope that Mercadante makes a reflection based on the criticisms that have been made and dedicates itself to reinforcing the role of the BNDES in the sense of filling the gaps in the market and not to act as an investment director, in the choice of national champions”, says the former minister.