PT doesn’t need to kneel in the corn, but show that it learned from its mistakes, says Arminio Fraga

Although the new government frequently remembers the successes of the two previous administrations of President Luiz Inácio Lula da Silva, it is not possible to fragment the PT government, says economist Arminio Fraga. The party changed its course in economic policy during its period at the head of the Planalto, with losses for Brazil, and the fact that it never admitted the mistakes of that strategy fuels mistrust to this day.

“I think it’s fundamental to understand the period in which the PT governed as a whole. You can’t be selective and choose just the part that worked. After Palocci [ministro da Fazenda Antonio Palocci, de janeiro de 2003 a março de 2006]the strategy changed radically —and it was this mistake that led to the collapse of the economy,” says Fraga, who is also a columnist for Sheet.

“Even if you don’t kneel in the corn and make a mea culpa — hardly a politician does that kind of thing — it would be good if it showed through practice that the lessons were learned.”

The signs, so far, are going in a direction that worries him, says Fraga. According to him, going back on the State-owned Law and using public banks and Petrobras to foster the economy resembles measures that failed in the past.

Looking ahead, Fraga considers the initiative taken by the Minister of Finance, Fernando Haddad, to reduce this year’s primary deficit to be positive, but he is waiting for long-term measures that will signal what is most important, the direction of economic policy in the Squid 3.

“I hope he presents targets for the next two years, which will take the primary balance to comfortably positive territory, which, in my assessment, would have to be at least 2% of GDP [Produto Interno Bruto].”

Before taking office, at the end of the year, Mr. he stated that he did not regret having voted for Lula, but he was worried, especially because of the PEC, which increased spending in 2023. What is the stage of concern now that we have ministers sworn in and speech signaling guidelines? Stay high. In large areas, such as education and health, the simple appointment of ministers allows us to see very positive changes. In other areas, not so much. In the area I follow, because it is my area, the economy, the signs were given before the inauguration, and they were not good. The definition of a larger strategy is to come, as well as what steps should be taken and in what sequence.

But my vote for Lula had clearly political contours. It was a vote concerned with our democracy — and I reiterate that I do not regret it. I was more concerned about what would happen to Brazil’s democracy under Bolsonaro than what Lula would do to the economy, even though I wasn’t clear about that. There is no secret that it was a much more political vote than an economic one.

I would say that, apart from President Lula’s first term, I would never vote for the PT, because of the party’s ideals and also its practices. The signs that were given by the president-elect showed, early on, that it would not be the model of the first term. The question remains whether it will be like in the second, its turbocharged version in the Dilma government. But never mind, my vote would be the same.

I think it’s fundamental to understand the period in which the PT ruled as a whole. You can’t be selective and choose just the part that worked. After Palocci, the strategy changed radically — and it was this mistake that led to the collapse of the economy.

I would even say that there is a lack of humility in this regard.

Even if you don’t kneel in the corn and make a mea culpa — hardly a politician does that kind of thing —, it would be good if it were shown through practice that the lessons were learned

For example. The fiscal hole started in 2014 and 2015. The economic collapse that followed was a colossal collapse of confidence. Today, part of the inheritance that President Lula receives came from himself.

I have been careful with the little I say and write, waiting for positions from Minister Fernando Haddad and his partners in the economy to then make a more grounded analysis. But there are signs in the air that things could lead to another economic disaster, and that does worry me.

What signs? I like to think [o cenário] looking at three major areas in which the government can and should act in the economy.

Without any weight given to the sequence, I think that, first, it is necessary to have a macroeconomy that removes big jumps, risks and crises from the horizon. A lot of people say here in Brazil, and it’s not new, that it’s necessary to remove the economy from the front page of newspapers. Something like.

Then there are the aspects related to growth. Economic growth has to do with demand and supply, but there is a lot of talk about demand —in that “spending is life” model, and little supply. This leaves out a vital aspect [para o crescimento]productivity.

I still don’t have a clear vision of what the current government thinks about the subject, but we hear a lot of things that suggest a return to a failed past.

Finally, we also have urgent social issues and those linked to inequalities and lack of opportunities. They are important anywhere in the world, but in an extremely unequal country like Brazil, resolving them is a necessary condition for the country to evolve. Failure to address these issues pushes the country towards populism and generates frequent tensions.

Let it be clear here that responses to inequality are fully compatible with accelerating growth. I’m talking about investment in education, health, security and infrastructure, which includes areas such as sanitation and transport.

What would be the signs of a failed return to the past? There are several points. Changing what promises great advances, as in the case of the sanitation framework. Go back to State Law. Using, God knows how, public banks. Using Petrobras in manipulations that broke the company in the past.

Will this happen again? What we hear indicates that it is quite possible.

As mr. Do you evaluate the extension of fuel exemption? More for bad. The theme has several dimensions.

In favor of the return of the tax we have the fiscal question. The order of magnitude of the values ​​involved is high. I would also include the environmental issue. It is not mentioned much, but the whole world sees carbon taxation as a tool to avoid a planetary climate disaster.

On the other side is the idea of ​​short-term inflation. But if we think about it, we have a well-functioning inflation targeting system that has been in place for 24 years. The direct impact of the increase in price levels resulting from a tax change must be, to a large extent, accommodated by the Central Bank, which must, in fact, fight the secondary effects.

I suppose that there was a fear of prodding truck drivers with the increase in diesel prices and that the costs for the public transport system were also considered. But, putting everything on the balance, I think a full return of the tax would have been better.

Minister Haddad says he will reduce this year’s deficit by reviewing, among other measures, the cut in exemptions granted during the Bolsonaro administration. As mr. see this initiative? From a macroeconomic point of view, this is the priority. But I think we have to give the minister time to show what path he sees as possible. Personally, I hope he presents targets for the next two years, which will take the primary balance to comfortably positive territory, which, in my opinion, would have to be at least 2% of GDP. This aspect of the Fiscal Responsibility Law must be preserved.

What’s more, I’m not one of those who think that a good macroeconomic policy boils down to stabilizing the debt at the level it already is. The debt is heading towards 80% of GDP again, with a very high real interest rate, in fact, and without the slightest chance that there is a voluntaristic magic to solve the issue.

The primary balance goal? Yes. I would also add a spending target, which can always be subject to rain and thunderstorms in emergency situations. This target can and should be able to eliminate pro-cyclical aspects of fiscal policy.

This is a topic that has been around for a long time. I remember that I discussed it with Minister Palocci before he took office. It was not possible at that time. However, I believe that it is time to introduce a fiscal policy that has countercyclical elements

There are two possible components.

The first would be to set expenditure and revenue forecasts in the Budget. If the economy grows faster, you can accumulate fat, because revenue will be higher than expected. Symmetrically, if the economy slows down, spending cuts will not be made to compensate for the drop in income.

The other point would be to fix and improve mechanisms in the social area, which includes tinkering with unemployment insurance. In Brazil, it doesn’t work very well. I’m not an expert in the field, but there is a consensus that the rules are outdated and, I would say, messed up.

What is your assessment of the composition of the economic team? I don’t want to fulanize. It’s too early to take stock. We’ve seen people with very good education do a lot of microeconomic nonsense, and the opposite too. Anything can happen. I’m not from the school in Campinas or the Federal University of Rio de Janeiro.

Many of them stopped in time, they historically did a lot of nonsense, but that doesn’t mean they’re going to do it again. I think you really have to respect the people who are there and give them a chance to show what they really want to do.

Mr. doesn’t want to make fun of it, but one who was beaten a lot because of his school was the economist Guilherme Mello [Secretário de Política Econômica, professor na Universidade Estadual de Campinas]. I think he himself must know that he is a part of it. Anyone in that position knows he’s going to get into a whirlwind of criticism, often unfair and false. If you’re not prepared for that, you’re better off doing something else.

What is said is that, as a whole, the team is diverse. Geraldo Alckmin, Fernando Haddad, Simone Tebet and Esther Dweck will work together. They are very different. Well, let’s go. Minister Simone Tebet has positioned herself, I would say, more liberally on the economy. The fact that she had Elena Landau as her main adviser makes that absolutely clear. Vice-president Geraldo Alckmin is a historical cadre of the PSDB. The others have always worked more on the heterodox side.

Anyway, I don’t see the point of labeling people without giving them a chance to show what they intend to do as a group. It’s good to have a little calm. Soon we will see. Then we will have substantive debates. I’ve been through the government. I always found critical debate to be very useful.

RAIO-X – Arminio Fraga, 65

Economist from PUC-Rio (Pontifical Catholic University of Rio de Janeiro) and PhD in the area from Princeton University, he is a founding partner of the management company Gávea Investimentos. He was managing director of Soros Fund Management, the investment company of businessman George Soros (1993 to 1999), and president of the Central Bank of Brazil (1999 to 2002). He participated in the foundation and chairs the boards of the IEPS (Institute of Studies for Health Policies) and the IMDS (Mobility and Social Development Institute)