Galípolo: what the BC president thinks – 07/03/2023 – Market

What Gabriel Galípolo thinks about the economy was already important because he is the number two executive secretary of the Ministry of Finance. But when he was appointed to the Monetary Policy Board of the BC (Central Bank), even quoted to become president of the autarchy after the end of Roberto Campos Neto’s term, the understanding of his north in the area became an even greater target of speculation.

Members of the top government have stated that Campos Neto wants to take Brazil into recession to lower inflation, and Galípolo is going to reverse this strategy. President Luiz Inácio Lula da Silva (PT) himself trusts her. At BC, the belief is that it will help the government to understand the importance of high interest rates until inflation subsides. He himself says that he will promote “harmonization between fiscal and monetary policy”

Gallípolo must be questioned by the Senate this Tuesday (4), along with Ailton Santos, appointed to command the BC’s inspection area.

Economist Luiz Fernando Figueiredo explains that the function of the Director of Monetary Policy, a position he held from 1999 to 2003, is to focus on what is happening in the financial market here and in the world to give direction to the Central Bank.

Among its tasks are the management of international reserves, taking care of the exchange desk, which intervenes in the spot market, but is also responsible for the Selic system, and ensuring that the interest rate remains at the defined rate, in addition to assisting the National Treasury in auctions. of titles

“It is important in this post to have experience on the operating table, but, of course, everything can be learned. We already had directors who had not worked on the table and learned there in BC”, he says.

Figueiredo does not know Galípolo, but from experience he believes that, in the end, he will have an alignment with the Copom (Monetary Policy Committee).

“I always think that complementary minds work better than everyone thinking alike, and today there are complementary heads at Copom, but from a technical point of view it is very difficult to disagree with what they are doing”, says Figueiredo.

“I think that, as he comes into contact with the BC’s technical background, there is a great tendency to converge with the thinking of the others.”

When contacted, Galípolo and the Ministry of Finance did not return to Sheet.

In interviews given before joining the government, when he adopts a more diplomatic discourse, the economist shares his views. The history of these appearances shows that he often enters into debates on controversial topics between two economic strands.

On the one hand, the orthodox, economists aligned with the mainstream, the dominant thinking, usually based on statistical models, on the other, the heterodox, who propose a more empirical and socioeconomic view of the phenomena —with Galípolo more aligned with the second group.

Recently, one of his lives was rescued and posted on Twitter by economist Alexandre Schwartsman. In the excerpt, journalist Luiz Nassif recalls that the president of Turkey, Recep Tayyip Erdogan, had fired the BC president shortly after the institution raised interest rates, and asks whether the gesture would have the potential of a “demonstration effect” for Brazil.

It was March 2021. The Central Bank of Brazil had just started the cycle of raising the basic interest rate, from the historic low of 2% to 2.75%. The aforementioned was the third Turkish BC president fired for displeasing Erdogan, a right-wing autocrat.

Galípolo does not discuss the dismissal, but develops the idea that the Turkish president was right on one point: raising interest rates in an economy hit by crises and recessions, in the midst of the pandemic, did not combat, but increased, inflation. Schwartsman qualifies the declaration as reckless.

“The reason for the publication was to draw attention to Galípolo’s exotic ideas, to say the least, namely that higher interest rates raise inflation,” he told the Sheet.

“It doesn’t hurt to remember that the same ideas he defended in the conversation with Nassif were tested in Turkey and took inflation close to 90%, now more around 55%. Anyone who is not minimally concerned about this is dangerously alienated.”

Nassif disagrees. “Galípolo participated in several lives and showed a broad knowledge, which goes far beyond the market. He discussed logic with Newton da Costa, impressed André Lara Rezende with his knowledge of monetary policy, in addition to his mastery of market operations and PPPs”, he told the reporting.

“As director of Monetary Policy, the Central Bank will certainly have a more active role in the exchange rate and in the long interest rate market.”

Galípolo circulates well among businessmen and executives in the financial market. So-called traditional economists say he is a light heterodox, a more modern representative of Unicamp (State University of Campinas), a reference among academic centers on the left.

Galípolo, however, has a degree and a master’s degree in Economic Sciences from PUC-SP. The institution is not a reference in the debate, but it is seen as a gateway to academic life for young heterodox economists, and he taught undergraduate courses for six years.

His association with Unicamp may come from his perceptions close to the so-called developmentalism, an economic theory that defends the potential of the internal market for the growth of countries, including the use of tariffs to inhibit imports.

In March 2017, at a meeting with economists at Bar do Alemão, in the Moema neighborhood, in São Paulo, he discussed globalization and its negative effects on domestic industry.

“I think it’s time —it may be something nostalgic, but I feel free to say it— for us to try to rescue the Furtadian discourse of endogenization of a dynamic pole”, he said.

Translating from Economish, he defended endogenous development. This theory preaches, in summary, the use of local resources, valorization of labor and adoption of new technologies for the creation of wealth and improvement of social well-being. Among its drivers are public incentives and subsidies to private companies.

At the same event, he stated that there was no automatic correlation between interest rates and fiscal problems, but that assuming this relationship had become a dogma in Brazil.

“You can make a list of 5, 10, 20… As many countries as you want, you will find several countries with public debt in relation to GDP much higher than ours and with interest rates much lower than ours,” he said. . “That is, the interest rate does not keep a correlation with the fiscal issue and these so-called macroeconomic fundamentals.”

The relationship between exchange rate and inflation was another aspect of the topic he addressed, this time in an interview with journalist Sérgio Lírio, from Carta Capital magazine, in November 2021.

“It’s been 30 years since we’ve had a single remedy to combat exchange rate devaluation, which generates an inflationary process. We raise interest rates, looking at US policy and exchange rate policy, regardless of the country’s employment and income situation. “, he stated.

This interview was different. It counted with the participation of the economist Luiz Gonzaga Belluzzo, appointed as mentor of Galípolo. They wrote three books together. Belluzzo denies sponsorship, but has high esteem for Galípolo who, he told Sheetmet when he was 18 years old.

“We share human flaws, curiosity and doubt. We always put ourselves in doubt, to know if what we are studying or observing corresponds to what we imagine we are seeing”, said Belluzzo.

“Gabriel is a very broad person. I am scared by the intellectual precariousness of what is written about him.”

In a conversation that Galípolo had with economists Paulo Gala and José Marcio Rego, in August 2021, he discusses how the financial market operates with information, using the casino analogy.

“When you play in a casino, and everyone puts a pebble on a number, that doesn’t change the probability of the number happening. But in economics, the bets are the results themselves. If everyone bets on a number, it will come up. that number,” he said.

“It’s much more a game of manipulation of public opinion, by third parties. As he says [o economista Maynard] Keynes, I’m trying to predict the average opinion, if I convince the average opinion of what’s going to be, I’m going to do well. It is a process of you controlling information, trying to manipulate and produce information in your favor.”

For Gala, BC wins with his nomination. “Galípolo is one of the most brilliant economists of our generation,” he told Sheet.

It is difficult to predict how these intellectual positions could define Galípolo’s actions in the current context of polarization between fiscal and economic policy, as demonstrated by the climate in Brasilia.

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