Brazil needs to discuss why it grows less after reforms, says Campos Neto

In the opinion of the president of the Central Bank, Roberto Campos Neto, Brazil needs to discuss the issue of growth in more depth. “The $1 million question is what Brazil needs to do to have long-term structural growth,” he said during his participation on BandNews’ Canal Livre program.

Campos Neto recalled that, about a decade ago, research by the Central Bank, based on analyzes by economists in the financial market, indicated that long-term growth in Brazil fluctuated between an average of 2% and 2.5% per year, a low rate for an emerging country like Brazil.

Now, this growth projection is even lower. It is between 1% and 1.5%.

“When they listed the reasons given for the low growth, back in 2014, it came that we needed pension reform, tax, labor, an economic efficiency law, another for the gas market, we needed infrastructure.” said Campos Neto.

“If I make a list of 20 items that we needed and go see what was done, we have that a good part of the list was addressed. The projection had to improve, go up, but it went down.”

In his opinion, some factors contribute to this. The fact that Brazil grows little for a long time may contaminate future expectations. Not being very clear about the institutional gain that is intended with the reforms would be another problem. “I don’t have an answer, but this is an area that we need to work hard,” he said.

For this year, the average of market expectations is a growth of 0.5% for GDP (Gross Domestic Product). Campos Neto recalls that the banks began to evaluate a review, to raise the projection, when the shock of the Ukraine war came, bringing new uncertainties.

“We still have the expectation of a growth of 1%”, he said.

“Some elements suggest that growth may be a little higher this year.”

This projection, he explains, includes public policies, which provide for assistance to the population, including programs for states and municipalities that have cash to provide social benefits, as well as financial market credit concessions, which remain high.

“We still have double-digit growth [do crédito]remembering that we come from two years of a pandemic with credit growing at 16%, one of the largest credit growth in the emerging world.”

Campos Neto also highlighted that monetary policy has contributed to growth. “The best way for the Central Bank to contribute to sustainable growth is to maintain price stability, bearing in mind that inflation is the biggest generator of inequality,” he said. “When inflation is very high, those who have more resources protect themselves more than those who don’t.”

He also said that, although interest rates are high in the short term, which inhibits economic growth, there is a positive effect in the long term. “The Central Bank only controls short-term interest, but when I raise the short-term, generating credibility in politics, this reduces long-term interest, which is what matters for investments in infrastructure and construction of factories.”

At the most recent meeting, on March 16, the Copom (Monetary Policy Committee) raised the Selic, the basic interest rate, by one percentage point, from 10.75% to 11.75% per year.

The president of the Central Bank once again stated, according to the institution’s projections, inflation will lose strength in the first half of the year, peaking around April.