Increased spending is not what will help the economy right now, says Haddad

The future finance minister, Fernando Haddad, said this Wednesday (14) that the expansion of public spending is not the engine that will boost economic growth at the current time. According to him, an eventual stimulus could come from the reduction in interest rates.

The former mayor of São Paulo said that an interest rate cut, however, will depend on a restructuring of the expenditure liability left by the Jair Bolsonaro (PL) government and on a signaling of the new administration’s commitment to the country’s fiscal sustainability.

“We are not at a time when fiscal expansion is going to help the economy. We are at a time when we are taking on a fiscal situation, we are assuming inherited commitments. We are not going to abandon people who were linked to the INSS, to Auxílio Brasil, none of that “, said Haddad in an interview with the GloboNews channel.

“If there is room for stimulus, it would be monetary. If we know how to make the transition, there is room for a lower interest rate. You have to provide security for the monetary authority,” he said.

Haddad’s speech contrasts with the plans of the elected government, which has been criticized by economists for calling for an expansion of R$ 168 billion in spending over a period of two years.

The team of the president-elect, Luiz Inácio Lula da Silva (PT), sees the amount as necessary to supply areas that had drastic cuts in resources and guarantee the continuity of the minimum benefit of R$ 600 from the Auxílio Brasil, which should go back to being called Bolsa Familia.

The financial market understands that the bill is excessive and could put pressure on inflation, forcing the Central Bank to keep the basic interest rate, the Selic, high for a longer time. Today it stands at 13.75% per annum, and the BC itself has issued warnings about the impact of an exaggerated expansion of public spending on rising prices.

Haddad, who has participated in conversations about the PEC (proposed amendment to the Constitution) that authorizes increased spending, defended the values. The future minister resorts to the argument that the expansion of the ceiling by R$ 145 billion maintains the level of expenses in relation to the GDP (Gross Domestic Product) already observed in 2022. The other R$ 23 billion would be investments outside the spending ceiling.

However, he sought to signal that he intends to “put the house in order”. The speeches took place the day after he had lunch this Tuesday (13) with the president of the Central Bank, Roberto Campos Neto.

“If we restructure this liability, signal sustainability, you combine the two policies [fiscal e monetária], brings this interest rate to a level it could already be. And the sooner we do this, the sooner we will reap the rewards of the right decision”, said Haddad.

“In my opinion, if this is presented well, there is room in monetary policy to bring about growth,” he added.

Haddad also defended the agenda of concessions and PPPs (public-private partnerships) to leverage investments, and signaled that Gabriel Galípolo, nominated to be his number two in the Ministry of Finance, will have a mission on this front.

“I brought him a lot because of that, to help me reduce bureaucracy and think about modern financial engineering”, he said. “Concessions and PPPs tend to become the order of the day, we have to unlock them.”

The speech diverges from the promise made by Lula this Tuesday to “put an end to privatizations”.

In this Wednesday’s interview, the future minister also indicated that he intends to cut expenses and fight what he labeled “money going down the drains”. He did not detail these initiatives.

“There is a lot of drain where money is leaving, we are going to close. We are going to evaluate the programs”, he said. “But I already have a very advanced diagnosis of the first measures.”

He also said again that he intends to send his proposal to reformulate the tax rules at the beginning of 2023, although the PEC pending in Congress provides for a deadline of August 31 of next year for the delivery of this initiative.

“We have to show everyone the sustainability of the public debt, respect for contracts, the fiscal anchor that we want to send right at the beginning of the year”, he said.

Haddad also expressed the intention of inviting economists to compose a kind of advisory council for the Ministry of Finance. Among the names with whom he said he wanted to “maintain dialogue” are Persio Arida and André Lara Resende —who worked in the elaboration of the Real Plan and, during the current transition, are part of the economics technical group.

“I would like it very much and I am going to make a kind of council with whom I will meet periodically”, he said. “I like to listen a lot. I have my opinions, I have my way of seeing the economy, but you make less mistakes, and the few mistakes that politics allows you to make, you correct quickly.”