Lula follows the script of Dilma’s economic disaster, says Branchieri

Phenomenon on social media due to the harsh and constant criticism he fires against the government of Luiz Inácio Lula da Silva (PT), the economist, business consultant and state deputy Claudio Branchieri (Podemos-RS) fears that the President of the Republic “has not learned nothing with the past.” As a result, Lula and the PT would be, in his view, “repeating the mistaken models and practices” of their previous administrations, which could lead the country to the same scenario as Dilma Rousseff’s (PT) government, marked by deep economic downturns in 2015 and 2016.

“The change in the fiscal target only expands the current laxity with public spending and will produce devastating consequences. Lula follows the same script that led Brazil to the biggest recession in history”, warned Professor Cláudio, as he is known, in this interview with People’s Gazette.

For him, the country is still driven by agribusiness and by measures implemented under the government of former president Jair Bolsonaro (PL). But the resurgence of mistaken actions from the PT era is already, according to the parliamentarian, undermining good expectations for the coming years, especially in relation to the level of public debt. “The risk of Argentineization is real,” he said.

Professor Cláudio explained that encouraging investments financed by the Treasury can generate many jobs quickly, but the jobs opened through this route have, for the most part, a low productivity profile, focused on commerce and services, without solid gains. for the development. Furthermore, he states that this is an unsustainable strategy in the long term, ending up causing damage to the economy as a whole due to the fiscal imbalance. “Unfortunately, we have a government with economists who don’t understand anything about economics,” he joked.

First-term deputy, elected to the Legislative Assembly of Rio Grande do Sul with 33,709 votes in 2022, after a long career in teaching, Professor Claudio does not hide his admiration for the former Minister of Economy, Paulo Guedes, as a promoter of privatizations, of reduction of administrative machinery and incentives for entrepreneurship. Master in Economics and postgraduate professor at Centro Universitário da Serra Gaúcha (FSG), the parliamentarian is seen today as one of the most popular defenders of economic liberalism. See below the main excerpts from the interview.

What will be the consequences for the Brazilian economy of President Lula’s decision to relax the fiscal target established by his own government for 2024?

Claudio Branchieri – Lula’s decision to relax the fiscal target makes everything more difficult for the country and for the government itself. The consequences are, without a doubt, terrible in all respects. The relaxation of spending is reflected in the lack of control over public debt. In practice, this is what a responsible fiscal policy is all about: controlling the debt level, currently at around 75% of the Gross Domestic Product (GDP) and rising. When the president says that this “isn’t that big of a problem”, he shows his total lack of commitment to stability.

The Minister of Finance, Fernando Haddad, in turn, when trying to explain himself, shows that he has no strength to oppose what is imposed by his boss, without wanting to do anything to correct the damage that will come. Lula and Haddad are surrendering to what politics demands, leaving the market insecure and increasing interest rates for everyone, including the government itself, families and companies. The risk of Argentineization is real.

The financial market quickly showed this concern, with its bad mood, dropping the value of Brazilian assets and putting pressure on the dollar…

Claudio Branchieri – Yes. The change in the fiscal target will have devastating consequences. The effects on the financial market are already worrying, with more projections of the evolution of public debt and higher future interest rates in the coming years. PT members cannot see the long term, but what is to come thanks to them is quite scary. When she signaled a week ago that she would not meet her targets to balance the public accounts, Lula lied, distorted facts and transferred the blame to third parties, as is her habit. He managed to do something unexpected with this, which is to sabotage his own government of incompetents, the most wasteful in history, which will increase spending on advertising in 2024 and has already wasted hundreds of millions on travel and thousands more on real estate needed in the palace.

Is there anything reasonable in the arguments presented by Lula and the Minister of Finance, Fernando Haddad, for this sudden change of direction?

Claudio Branchieri – The fiscal framework proposed by the government was approved by Congress on August 31, with the forecast of zero deficit next year. Now, didn’t Lula and his Finance Minister, Fernando Haddad, know two months ago that they wouldn’t be able to honor their promises? They lied to parliamentarians and the people. The president stated that 2024 will be a difficult year, because China is growing less than usual and the United States has high interest rates. They forgot that the government of Jair Bolsonaro (PL) last year delivered a fiscal surplus and GDP growth of 2.9% despite the Chinese economy having grown little and agribusiness suffering the worst drought in almost 100 years. To make matters worse, days after the president buried the zero deficit target, Haddad reprized former president Dilma Rousseff by insinuating to journalists that he would “leave the target open”. A shame. Lula and the PT are repeating the same models and mistaken practices of their previous administrations.

For you, what will be the most serious effect of this stance that is even more focused on spending and electoral targets, contrary to responsible management?

Claudio Branchieri – The most worrying reflection must be on direct investment. Under the argument of stimulating investment through the state, the government takes on debt and takes resources from the end to the private sector, the one whose investment is more efficient. There may even be gains for the economy in the short term, but spending and just “feeling prosperous” is something that cannot be sustained. This does not generate permanent value for the main driver of growth, which is direct investment. Furthermore, the mistake of easing signals more inflation in the future and interest rates. Foreign investment had been affected by uncertainties and domestic investment was shrinking more and more throughout the year. The private sector is feeling negative effects and is backing down. By taking resources from the financial system for its projects, the government creates less favorable prospects for the private sector to take risks and invest. Therefore, company projects are not economically viable with higher interest rates.

Current interest rates are highlighted by Lula and Haddad as the economy’s biggest villains. Does it proceed?

Claudio Branchieri – Lula learned nothing from the past. The left always makes the mistake of blaming interest rates alone for low investment, without explaining the causes of these high levels. In 2012, President Dilma Rousseff (PT), a believer in this, instantly lowered interest rates to 7.25%, but even so, the private sector retreated from investments. The same occurred in the attempt to bring down electricity prices by force, which almost led to the complete bankruptcy of the electricity sector. The deficit remains large, and the fallacy is based on serious conceptual errors. Lula is following the same script that led the country to the biggest recession in its history, during the Dilma government, proposing dangerous interventions.

On the other hand, the idea that state spending on income transfers, as in the case of Bolsa Família, has, in itself, an important multiplier effect on the economy is very questionable, since the same money is taken from taxpayers to finance the benefit. Thus, the transfer heats up the economy at the expense of others. This government’s economists lack a broader view of the causes and effects, the structural aspect of the economy and the need for innovation and productive investment.

Why, in your opinion, even with the tragic numbers recorded in the last PT governments due to their economic policy, do Lula and his ministers continue to make similar bets?

Claudio Branchieri – PT cadres still understand the economy through the lens of “political economy”, something for immediate consumption and without any support. Dilma’s so-called New Economic Matrix is ​​the most complete proof of this. Economist Maria Conceição Tavares, Dilma’s teacher, was the one who cried in an interview after the launch of the Cruzado Plan (1986), ignoring that the price freeze did not work anywhere in the world. Investing in price control undermines the economy and reveals weak theoretical foundations. Let’s look at the case of industry, whose performance is stagnating again. Dilma’s New Matrix advocated heavy credit with subsidized interest and benefits for certain sectors and companies. In practice, this strategy of “national champions” turned out to be the largest transfer of income in history from poor classes to privileged, hand-picked economic groups.

Brazil may now be missing a golden chance to confirm itself as a great safe haven for global investment. The new legal frameworks and reforms built during the Bolsonaro government are beginning to bear fruit. It would be enough to reduce public spending and improve public accounts for economic growth to take off. But the path being followed is the opposite.

How do you explain a low and still falling unemployment rate?

Claudio Branchieri – Unemployment was at 7.9% at the end of the Bolsonaro government. In May 2021, due to the pandemic, it was 14.9%. There was, therefore, a reduction of seven percentage points in just a year and a half. Then, with the arrival of Lula, the trend continued and is now at 7.7%. The 0.2% variation considers the number of people who entered the job market for the first time. If we consider that part of the new jobs were created with public spending, we will see insufficient and unsustainable performance. The increase in public spending, 0.6% of this year’s GDP, is equivalent to an additional R$160 billion injected into the economy, but generating only 200,000 jobs. These resources generated jobs in the area of ​​commerce and services, with low productivity without much impact on economic development. Betting on large-scale public spending could lead to a recession in the long term and the provisional balance of low-income jobs. Agriculture, which is 100% Brazilian and free enterprise, boosted the economy significantly, being responsible for a third of GDP growth this year. The crop planted in 2022 is the one being harvested during Lula’s government.