Fernando Alcoforado*
This article aims to demonstrate the incapacitation of the State in Brazil as an inducer of economic and social development with the adoption of the public spending limitation and the autonomy of the Central Bank as part of the strategy of globalized neoliberal capitalism to transform it into a minimal State. Minimal state is the name given to the idea of neoliberal capitalism that the role of the state within society should be as small as possible, exercising only those activities considered “essential” and of the first order. The minimal state is a type of state that seeks to intervene as little as possible mainly in the country’s economy, but also in social issues. Theorists of neoliberal capitalism also defend the minimum collection of taxes and the privatization of public services. The neoliberal doctrine advocates the smallest possible participation of the State in the economy, giving preference to the private sector. Thus, the direct and indirect effects of reducing the size of the State would be the reduction of taxation, market liberalization, privatization of economic activities, less bureaucracy and a more favorable environment for business.
The strategy of neoliberalism to transform the Brazilian State into a minimal State began in 1990 as part of the strategy of globalized neoliberal capitalism for Brazil when the neoliberal economic model was adopted which, among other economic evils it produced, culminated in the adoption of the policy public spending limitation during the Michel Temer government and the autonomy of the Central Bank during the Jair Bolsonaro government. With the public spending limitation, the Brazilian State was limited in its ability to promote public investment with the financial asphyxiation to which it was subjected and made it impossible for the Brazilian State to adopt economic, fiscal and monetary policies, articulated with each other with the autonomy of the Central bank. Due to these factors, the Lula government inherited a Brazilian State devastated by the incompetence of the Bolsonaro government and incapable of promoting economic and social development because, with the public spending limitation, the Brazilian government will not be able to increase the Union budget, which will be frozen for 20 years since 2017 in accordance with PEC 55/2016 and the existence of a Central Bank that adopts recessive monetary policies in opposition to the government’s developmentalist economic policy, which make the resumption of development in Brazil unfeasible.
1. The public spending limitation and the financial asphyxiation of the federal government
It should be noted that, with the adoption of the public spending limitation, the Brazilian State lost the ability to act in the pursuit of economic stability in Brazil, given that it is with the increase in public spending that the federal government will be able to compensate for the eventual drop in household consumption ( C), private investment (I) and exports (X) and the increase in imports (M) to maintain GDP growth = C+I+ G+X-M or, with the reduction in public spending, offset the eventual increase in the household consumption (C), private investment (I) and exports (X) and the fall in imports (M). The public spending limitation inserted in the Constitution of Brazil based on PEC 55/2016 during the Michel Temer government was a crime committed against the development of Brazil because it limited public spending for the next 20 years, starting in 2017, which will only be readjusted based on the official inflation of the previous year with the possibility of revision from the tenth year onwards. This means that the federal government will be prevented from preparing the Union’s budget with a value greater than that of the previous year, only being able to correct its values according to inflation. Some public spending can grow more than inflation, as long as they are offset by real cuts in other areas. This implies that, in practice, public spending will not be able to grow during its 20-year term, that is, public spending will be frozen for 20 years, compromising public investments in infrastructure of energy, transport, communications, education, health, basic sanitation, and popular housing necessary for the economic and social development of Brazil. This means that if the public spending limitation is maintained, the Lula government will be unfeasible.
With the public spending limitation for the Union, the main trend is that, within a few years, federal government spending will have an increasingly smaller share in the formation of Brazil’s GDP, compromising the country’s economic and social development, given that the federal government, responsible for implementing the national economic policy, will be prevented from increasing public spending to combat the recession, when it occurs, as it happens at the moment, to compensate for the drop in household consumption, private investment and exports, according to with the Keynesian model. In other words, the federal government is prevented from promoting economic growth in Brazil or combating the recession by adopting compensatory measures from the macroeconomic point of view. The spending limitation is, therefore, a “straitjacket” preventing the Brazilian government from acting proactively to promote economic growth and combat recession when it occurs. This is the reason why the insertion of the spending limitation in the Federal Constitution constitutes a crime against the development of Brazil, that is, a crime against the homeland.
The existence of the public spending limitation led to the absurdity of the federal government having to prepare successive PECs (Projects to Amendment to the Constitution) so that their limits were exceeded, as happened during the four years of Jair Bolsonaro’s government, when they were created at least five exceptions that resulted in R$ 839.95 billion in spending above the public spending limitation, in current values. Most of the expenses incurred beyond what is allowed by Constitutional Amendment 95/2016 were authorized by the National Congress for actions to combat the Covid-19 pandemic. Before that, however, the limitation had already been exceeded the first time just a few months after the beginning of the Bolsonaro government, with the so-called Onerous Assignment PEC, presented in May 2019, of around R$ 46.1 billion, referring to the distribution of pre-salt areas, which were transferred to states and municipalities without being accounted for in the public spending limitation rule. In the same year, the Bolsonaro government made a contribution of BRL 7.6 billion to Emgepron, which was also not accounted for the purposes of determining compliance with the expenditure limit. Emgepron is a state-owned company of the Ministry of Defense whose function is to manage projects approved by the Navy Command and keep naval military materials up to date. In 2020, with the explosion of the Covid-19 pandemic, Congress enacted a new amendment to the Constitution that instituted the so-called War Budget, releasing expenses from the spending limitation rule to face the coronavirus. As early as 2021, with the approval of the so-called PEC of Precatories, the government postponed the payment of debts already final and unappealable that should be settled in the following year, in addition to changing the methodology for calculating the correction of the public spending limitation.
In 2022, the changes promoted by the Precatorios PEC allowed the government to stop paying BRL 43.8 billion of the BRL 89.1 billion originally committed to payment of precatory, in addition to earning another BRL 62.2 billion with the update of the public spending limitation rule. In June 2022, on the eve of the start of the presidential election campaign, the Bolsonaro government managed to approve a PEC that excluded an additional R$41.25 billion from the public spending limitation rule. The amount was used to finance the temporary addition of BRL 200 to the amount of the Auxílio Brasil program, in addition to aid for truck drivers and taxi drivers, all valid until December 2022. Before taking office, Lula negotiated to exceed the public spending limitation with the Transition PEC that proposes to free up space in the 2023 Budget for social programs and a real increase in the minimum wage. With the measure, the Lula government will be able to continue the payment of the Bolsa Família program of R$ 600 (plus R$ 150 per child up to 6 years old) from January 2023. The total expected fiscal impact of the proposal is R$ 198 billion, of which R$ 175 billion refer to Bolsa Família program and around R$ 23 billion for investments, a value linked to an eventual excess of collection. By removing these expenses from the fiscal rule, a space of R$ 105 billion is opened in the 2023 Budget for health, education and security, among others.
It is, therefore, absurd to maintain the public spending limitation that prevents the Brazilian government from promoting the country’s economic development, given the importance of government spending in the form of investments, mainly in infrastructure, in the process of economic growth, as there is a growing need for the government to intervene directly in the Brazilian economy in order to generate positive externalities for producers and consumers. It is absurd, too, to have to prepare PECs whenever the federal government has to exceed the public spending limitation. It is important to highlight that public investment, such as that which the federal government usually makes in economic and social infrastructure should not be considered as public expenditure. Public expenditures are all disbursements that come out of the government’s cash in the form of cost or expense, that is, they do not generate a financial return, unlike public investment. It is worth noting that, unlike government costs or expenses, public investment generates benefits such as, for example, increasing national production or reducing production costs, through expansion or modernization, for example, of economic infrastructure ( energy, transport and communication) and social infrastructure (education, health, basic sanitation, housing).
Instead of adopting the public spending limitation as a criterion to avoid the lack of control of federal government costs or expenses, the correct thing would be to prevent the increase in federal government costs or expenses without the corresponding growth in tax collection and not to freeze public spending as currently occurs. This means that the federal government should only increase its costs or expenses if there is an increase in tax collection. What is evident is that the adoption of the public spending limitation in Brazil is part of the strategy of neoliberal globalized capitalism to weaken the role of the Brazilian State, which is prevented from acting proactively in promoting Brazil’s economic and social development, thus facilitating, in this form, the domination of international capital in the Brazilian economy. This strategy’s primary objective, therefore, is to undermine any capacity of the federal government to interfere in the economic activity of the country, whose market would be at the mercy of globalized international capital. It is urgent to end the public spending limitation for the good of Brazil.
2. Central Bank autonomy and the unfeasibility of the federal government’s economic policy in promoting economic and social development
It is another absurd thing that happened in recent years in Brazil when Complementary Law 179/2021 established the autonomy of the Central Bank and that its president and directors will have fixed terms of four years, not coinciding with that of the President of the Republic. This Law establishes that price stability remains the fundamental objective of the Central Bank, which, without prejudice to this objective, will also ensure the stability and efficiency of the financial system, smooth fluctuations in the level of economic activity and promote full employment. However, in practice, the Central Bank with the presidency of Roberto Campos Neto, a convinced neoliberal and linked to the financial system to which he has always provided service and always aligned with Bolsonarism, cannot be expected to smooth out fluctuations in the level of economic activity nor encourage full employment with its emphasis on adopting extremely high Selic interest rates such as the current one of 13.75% while the country has an inflation rate of 5.8% per year in 2022. It is absurd for Brazil to have the highest real interest rate in the world, as shown in Figure 1. This discrepancy between the Selic interest rates can mean incompetence, satisfying the interests of public debt speculators or the purpose of sabotaging the Lula government.
Figure 1- Real interest rates in the world
Source: https://investnews.com.br/economia/ranking-de-juros-maio2022/
Even if Central Bank directors argue that raising Selic interest rates is aimed at preventing capital flight from the country and containing the advance of the devaluation of the real, there is no justification for adopting such extremely high interest rates. In addition to adopting extremely high interest rates, Central Bank directors have not given due importance to containing the increase in the dollar in the country in the fight against inflation, given that it has contributed to the increase in the inflation rate in Brazil in recent years, above all with its impact on the increase in fuel prices, which rose with the appreciation of the dollar against the real, in addition to the rise in the price of a barrel of oil on the international market. Therefore, the Central Bank has failed either to fight inflation, with extremely high Selic interest rates or to contain the increase in the dollar against the real.
One fact is evident: with the autonomy of the Central Bank, the National Congress made it difficult for the federal government to adopt fiscal and monetary economic policies articulated among themselves, as is currently the case, insofar as the recessive monetary policy imposed by the Central Bank with extremely high interest rates make the Lula government’s effort to promote the resumption of national development unfeasible. Furthermore, there is an evident fact which is that the adoption of interest rates as a method of controlling inflation has not worked in Brazil. In Figure 2, it can be seen that inflation rates exceeded the inflation targets from 2008 to 2015 and also in 2021 despite the adoption of extremely high Selic interest rates from 2010 to 2022, as shown in Figure 3.
Figure 2- Inflation in Brazil
Source: Macro Analysis
Figure 3 shows the extremely high Selic interest rates adopted by the Central Bank, which did not contribute to keeping inflation below the inflation targets established from 2008 to 2015 and also in 2021. Inflation rates were only below the inflation targets from 2017 to 2021, mainly due to the gigantic economic crisis that occurred in Brazil from 2016 onwards and the impact of the new Coronavirus pandemic, which contributed to the drop in aggregate demand in the Brazilian economy and not due to the Selic interest rates imposed by the Central Bank.
Figure 3- Evolution of the Selic rate from 2010 to 2022
Source: https://www.poder360.com.br/economia/selic-sobe-para-1275-a-maior-taxa-em-5-anos/
The fact that inflation rates have exceeded inflation targets, as shown in Figure 2, unequivocally demonstrates that raising Selic interest rates is ineffective in combating inflation in Brazil. The ineffectiveness of the method of raising Selic interest rates in combating inflation in Brazil puts on the agenda the need for its replacement by effective direct government action on the factors that generate inflation with the adoption of concrete measures to eliminate demand inflation, cost inflation, monetary inflation, inertial inflation, and the possibility of hyperinflation when they occur. The Lula government should combat demand inflation for goods and services by planning the economy together with the productive sector so that national production meets the domestic demand for goods and services. When domestic production is insufficient, the Lula government should make an effort to import what the country needs. The Lula government should fight production cost inflation by monitoring the evolution of wage, raw material, input and tax prices to adopt measures that contribute to preventing their increase without a corresponding increase in productivity and to encourage increased productivity in agricultural production, industrial, commerce, services, electric energy and oil production systems and cargo transport, and the increase of the government’s own productivity at all levels. It should be noted that increasing productivity means increasing production over time, with the least use of resources, at the lowest possible cost and the elimination of unnecessary expenses and waste. This can be achieved by using more modern production systems and rationalizing the working methods used. To avoid monetary inflation, the government has to prevent the uncontrolled issuance of currency. To avoid inertial inflation, price indexation must be avoided. To avoid hyperinflation, it is necessary to avoid inertial inflation.
3. Conclusions
The public spending limitation cannot continue financially asphyxiating the federal government and the autonomy of the Central Bank cannot derail the economic policy of the federal government in promoting economic and social development. The end of the public spending limitation and the Central Bank’s autonomy are the indispensable conditions for the Lula government to promote Brazil’s development. The future of Brazil and the success of the Lula government depend on the removal of these two major obstacles to the country’s development, as they incapacitate the Brazilian State from acting as an inducer of economic and social progress in Brazil. The reader of this article needs to understand that Brazil left the condition of an agrarian country, backward, in 1930, for that of a modern country with the industrialization process that occurred from 1930 to 1980 thanks to the Brazilian State that acted as an inducer of the development process national. It was thanks to the Brazilian State that Brazil achieved, from 1930 to 1980, the highest GDP growth rates in the world of around 7% per year and ranked among the 10 largest countries in the world economy in the 1980s. In the period 1991/2022, the federal government gave up planning the national economy influenced by neoliberal theses that considered that it was up to the market to promote the expansion of the economy. With the neoliberal economic model, Brazil had very low GDP growth rates, suffered a process of deindustrialization, in addition to contributing to the outbreak of the economic and social crisis in 2014 that lasts until the present moment. One fact is evident: Brazil cannot do without a State capable of acting as an inducer of its development. For this to happen, it is necessary to remove the public spending limitation and the autonomy of the Central Bank.
* Fernando Alcoforado, awarded the medal of Engineering Merit of the CONFEA / CREA System, member of the Bahia Academy of Education, of the SBPC- Brazilian Society for the Progress of Science and of IPB- Polytechnic Institute of Bahia, engineer and doctor in Territorial Planning and Regional Development from the University of Barcelona, university professor (Engineering, Economy and Administration) and consultant in the areas of strategic planning, business planning, regional planning, urban planning and energy systems, was Advisor to the Vice President of Engineering and Technology at LIGHT S.A. Electric power distribution company from Rio de Janeiro, Strategic Planning Coordinator of CEPED- Bahia Research and Development Center, Undersecretary of Energy of the State of Bahia, Secretary of Planning of Salvador, is the author of the books Globalização (Editora Nobel, São Paulo, 1997), De Collor a FHC- O Brasil e a Nova (Des)ordem Mundial (Editora Nobel, São Paulo, 1998), Um Projeto para o Brasil (Editora Nobel, São Paulo, 2000), Os condicionantes do desenvolvimento do Estado da Bahia (Tese de doutorado. Universidade de Barcelona,http://www.tesisenred.net/handle/10803/1944, 2003), Globalização e Desenvolvimento (Editora Nobel, São Paulo, 2006), Bahia- Desenvolvimento do Século XVI ao Século XX e Objetivos Estratégicos na Era Contemporânea (EGBA, Salvador, 2008), The Necessary Conditions of the Economic and Social Development- The Case of the State of Bahia (VDM Verlag Dr. Müller Aktiengesellschaft & Co. KG, Saarbrücken, Germany, 2010), Aquecimento Global e Catástrofe Planetária (Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2010), Amazônia Sustentável- Para o progresso do Brasil e combate ao aquecimento global (Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2011), Os Fatores Condicionantes do Desenvolvimento Econômico e Social (Editora CRV, Curitiba, 2012), Energia no Mundo e no Brasil- Energia e Mudança Climática Catastrófica no Século XXI (Editora CRV, Curitiba, 2015), As Grandes Revoluções Científicas, Econômicas e Sociais que Mudaram o Mundo (Editora CRV, Curitiba, 2016), A Invenção de um novo Brasil (Editora CRV, Curitiba, 2017), Esquerda x Direita e a sua convergência (Associação Baiana de Imprensa, Salvador, 2018), Como inventar o futuro para mudar o mundo (Editora CRV, Curitiba, 2019), A humanidade ameaçada e as estratégias para sua sobrevivência (Editora Dialética, São Paulo, 2021), A escalada da ciência e da tecnologia e sua contribuição ao progresso e à sobrevivência da humanidade(Editora CRV, Curitiba, 2022)and a chapter in the book Flood Handbook (CRC Press, Boca Raton, Florida, United States, 2022).
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