Opinion – Marcos Mendes: In defense of the Dilma government

During Dilma’s government, there were many mistakes in economic policy and we entered one of the biggest recessions in history. As even the PT cannot defend that administration, it seems to have chosen the strategy of concentrating all the blame on Dilma, painting Lula’s two terms as an absolute success.

It wasn’t quite like that. Dilma began her term in January 2011. The policies that generated the disaster had already been in place since 2005. Many of them were piloted by Dilma herself, on behalf of Lula.
The refusal to make a long-term fiscal adjustment plan dates from 2005, considered “rudimentary”.

From then on, the spending faucets were opened. Between January 2005 and December 2010, before Dilma took office, Federal Government personnel expenses grew 48% in real terms. Tax expenditures, in the same period, jumped from 1.8% to 3.5% of GDP.

It was also in 2005 that the meteoric trajectory of subsidized BNDES loans to friendly businessmen and allied nations began: disbursements increased from R$47 billion to R$168 billion between 2005 and 2010.

In 2007, the National Treasury began to relax the debt limit of states and municipalities. Origin of the subnational debt crisis in 2014.

As of 2008, with the barrel of oil hitting historic price records, it was decided to stop bidding for exploration areas, in order to create a new regulatory framework. It was five years without bidding, lost hundreds of billions of dollars. The new milestone is worse than the previous one.

Also from 2008 is the absurd Sovereign Fund, which promised to be an instrument to increase the profitability of international reserves, smooth the volatility of public revenue and save for future generations. But as the government was in deficit, and there was no money to put in the Fund, they borrowed at high interest rates to invest in uncertain assets. All the Fund did during its existence was buy Petrobras and Banco do Brasil shares high and sell low. After losing BRL 7 billion, it was closed in 2019. Not without the resistance of several groups in Congress.

The great failures of industrial policy began in the Lula government: Abreu e Lima Refinery (2007), Comperj (2008) and Sete Brasil (2010). In 2008, the legislation was changed, by order, so that Oi would form the failed “national supertele”.

The closure of the economy is also from this period: the increase in local content requirements in oil exploration began in 2005. In 2007, the intensive use of anti-dumping began to protect oligopolized segments of the national industry.

The construction of useless stadiums was sealed in 2007, the year Brazil was chosen to host the World Cup, and in 2009, in the decision on the Rio Olympics.

In practice, the Lula government’s letter to the Brazilian people lasted from 2003 to 2005. From then on, it was the PT’s traditional agenda.

It was no accident. The policies implemented stem from the following beliefs: (i) there is a chronic insufficiency of demand and, in order to grow, the government only needs to spend more, as this will stimulate the emergence of supply; (ii) there is no savings restriction, just grow and savings appear; (iii) the government knows which sectors of the economy generate the most growth, and must subsidize and protect them; (iv) growth is achieved by establishing the entire production chain within the country, rejecting globalization; (v) corruption associated with sectoral policies is less of a problem; (vi) productivity gains are irrelevant and the focus should be on increasing investment.

As Sebastian Edwards shows in a recent article, this diagnosis has been wreaking havoc in Latin America since at least the 1950s. It generates initial euphoria, but ends in tragedy.
Dilma deepened this agenda, making her own mistakes, such as dismantling the electricity sector. But the disaster began with Lula. The accumulation of errors burst in Dilma’s lap.

Lula benefited from a flood of tax revenue from the commodities boom, which allowed him to squander money without immediate consequences. This source dried up in Dilma’s term.

To believe in a different policy in the new Lula government is to want to deceive yourself. Just as those who believed in the legend of liberal Bolsonaro were wrong.