BC’s problem is more complex than football fans – 02/18/2023 – Panel SA

Economist Luiz Gonzaga Belluzzo, who has defended the drop in interest rates, including in a petition, echoing Lula’s speeches in recent weeks, says that the debate needs to be deepened so as not to be restricted to the climate of supporters for or against the Central Bank . “That’s only true in the football stands,” he says.

He sees input to the debate in the history of central banking and global analogies.

A friend of Lula since the 1970s, Belluzo does not comment on whether he has spoken with the president on the subject.

Mr. has supported the defense of a drop in interest rates, including in a petition. How do you evaluate the debate today? We are going to deepen the discussions so that the debate is not restricted to us against them or the Central Bank against Lula. Australia is subjecting the issue of BC independence to a deeper debate. There is a global questioning regarding the inflation targeting policy.

Since the emergence of [BoE] Bank of England, in 1694, were several ways in which central banks acted. I’m talking about a capitalist financial money economy. Throughout history, she has taken on various forms of coordination, but some are well consolidated.

We have the appearance of the public debt as an instrument of private wealth, which propagated monetary relations, when England transitioned from feudalism to capitalism, transforming economic relations from the domain of land wealth to monetary relations. This management took several forms.

The classic example is the functioning of central banks and banking systems after the Second World War, in which France and Italy adopted systems of coordination and regulation that were very different from what we observe now. They used credit control, much less the interest rate so as not to harm borrowers, for example, at the same time as they regulated so there was no exaggeration.

It worked well, then it went out of fashion with the oil shock and the interest rate shock of 1979. Now there is a kind of non-compliance with the target policy. It’s not just in Brazil.

What is the core issue?We are observing a disagreement between economic policy instruments, especially with regard to combating inflation in relation to preserving a certain indenity of economies, of their growth in the face of monetary policies.

There are many economists who do not share the wisdom of some, especially those more connected to the market, such as [Joseph] Stiglitz. He’s written several articles recently about the inadequacy of monetary policy to combat this kind of inflation that we have there. Not just him. What they say is that this is a supply shock, which has the capacity to spread through the economy, because it was due to a contraction in supply and a rise in the prices of fossil fuels.

So, the issue is this: a shock from a universal input that cuts across the economy as a whole and doesn’t preserve any sector. Energy is a universal input. Its price is not like the price of gossip or a shoe, which affects few people when it rises. But energy affects everything and causes a transformation of the price system.

The price system is one thing in this monetary and financial economy, which is so susceptible to changes, distortions and degradations, that it sometimes requires intervention when the shock is very intense. And we already observed this reaction, at the end of the Second World War, to coordinate prices, given the asymmetry in the exit of the sectors, this caused a supply shock, etc.

Economists, including Nouriel Roubini, are considering this, criticizing the use of monetary policy so intensely, giving up other instruments that can be used and that were used.

For example?There was a discussion here about the oil stabilization fund. The idea is to coordinate prices, not control, maintaining the company’s profitability and, at the same time, fulfilling its role as a fossil fuel, which is actually of public interest. Energy is an input of public interest.

Returning to the issue of inflation, there has been a very wide debate in the past. I spoke of the post-war period, the Germans, above all, who suffered from the memories of the great inflation, created a price coordination system in negotiations between workers and businessmen. Germany’s central bank, the Bundesbank, only decided the interest rate after listening to negotiations between them. It is a social organization. Salaries were negotiated and then the Central Bank decided on the interest rate.

Incidentally, central banks used the interest rate little. They used much more quantitative credit control. What I want to say is that it is a more complex problem than what is stated there in favor of the Central Bank or against it. This is only true in the football stands. It is twisted from one against the other.

The debate entered this area of ​​support for the signs of the president of the BC with Bolsonarism, didn’t it?Undoubtedly. The problem is that, in general, it is assumed that economics is a science restricted to technical considerations. Politics is part of society’s life. The BC is a state institution. The construction of these institutions is part of the market regulation game. They are also political institutions.

One is talking about this coexistence of the president of the BC, who, by the way, was chosen by Bolsonaro, but he, above all, owed allegiance to Paulo Guedes, who is an economist with a background in the Chicago School, quantitative. The technical character of BC is also in question.

The market is an entity itself. They repeat these mantras and it reflects the power that financial markets have in today’s economy and society. I’m not saying it’s bad or good. It works like this because in a financial monetary economy, the allocation of resources, the distribution, is done through the evaluation of the financial markets, which determine the destination of the credit and fulfill the role of regulating the valuation or preventing the devaluation of the financial assets, which are born of credit, because when you take out a loan, you create a debt, and it is measured in the markets. So it has enormous power.

It is one of the reasons why, in the post-war period, after the 1929 crisis, there was financial repression, that is, a control of the financial markets that did not allow, for example, crazy things like the 2007 and 2008 crises.

If we look at the 30 years after World War II, there were rare crises. After the bug is released, it is his instinct, he begins to accumulate monetary wealth in a way that is sometimes leveraged, abusive. That is why financial control is important. And what prevails today is the idea that markets are efficient. After the 1980s, we had a huge succession of crises.

What we are seeing now is that we have the risk of a credit crunch. And it arises for many reasons, including one where you leverage debt, and people’s income and company revenue don’t keep up. A default condition builds up. There are many small and medium-sized companies under threat. I think this is starting to show even in the markets.

Mr. is close to President Lula. Have you talked about it with him?I can’t say these things in an interview.

There are many interpretations about his intentions and the outcome, no?I have noticed that the weather has taken a turn for the worse. I think that conversation between Haddad and people in the market put things at a more reasonable level.

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Graduated in law from USP, the economist was Secretary of Economic Policy at the Ministry of Finance during the José Sarney government. In the state of São Paulo, he was Secretary of Science and Technology (1988-1990). In addition to being a professor of economics at Unicamp, he was one of the founders of Facamp