Lula government’s industry stimulus plan is a reinterpretation of mistakes

The stimulus plan for Brazilian industry announced by the government of Luiz Inácio Lula da Silva (PT), this Monday (22), brings a “rereading” of past measures and shows a “mistaken diagnosis” about the roots of the shortage problem competitiveness of the industrial sector, according to economists interviewed by People’s Gazette.

With a forecast of R$300 billion in financing and subsidies for the sector by 2026, the industrial policy includes six incentive areas or “missions”, with goals and guidelines for the next ten years, placing the State as a driver of development.

“Although it has positive points, this view draws more attention. The Brazilian experience itself should have made it clear that the State as an inducer of industrial growth proved to be an inefficient policy,” says Gabriel Fongaro, senior economist at Julius Baer Brasil. “A lot of money is spent and there is no evidence of a positive structural impact that outweighs the costs”, he adds.

Juliana Inhasz, economist at Insper, assesses that the plan is a reinterpretation of things that have already been done, with a protectionist bias, without paying attention to the competitiveness and productivity of companies over time.

“I think at this point the perception that we are doing more of the same is evident, right? We’ve already done that, right? The government has already provided resources to various types of industry, with subsidized interest rates. And where are we? ? Doing the same things again that didn’t work.”

Market sees fiscal risk; Lula showed no concern

The financial market reacted badly to the announcement of the plan. The dollar rose and the Ibovespa fell on Monday (22), highlighting agents’ concerns about the fiscal impact of the measures and the possible increase in inflation, which would prevent the Central Bank from maintaining the path of falling interest rates.

In Inhasz’s assessment, the Lula government is not giving due weight to public accounts. “It’s a large contribution that will be made without potentially a major fiscal concern, right? The president made it very clear that he is not worried about the situation. The financing is likely to be done through public debt.”

President Lula said on Monday, referring to the ministers who would be held accountable for results, that money was “not the problem”. “The problem doesn’t end here, it starts here. We have three more years ahead of us. Our problem was money, if money is not a problem, then we have to solve things much more easily,” said Lula.

Fongaro corroborates the concern. “In a context of the need for a structural fiscal adjustment of around 3% of GDP, any policy that involves an increase in public spending should undergo rigorous scrutiny,” he says.

According to the government, of the R$300 billion allocated, R$271 billion will come from financing with subsidized interest, R$21 billion from “non-refundable” credits and R$8 billion will be spent by the National Bank for Economic and Social Development (BNDES ) to buy shareholdings in companies, reissuing a policy of other PT administrations and making a move contrary to that of the previous government, of Jair Bolsonaro (PL), which encouraged disinvestment in these companies.

Felipe Novaes, economist and Industry analyst at Tendências Consultoria, highlights that the government has not yet defined how these contributions will be made possible via BNDES. The main problem, for him, is the definition of a governance structure for the program presented.

“There is obscurity regarding governance and the metrics that will guide the mechanisms via BNDES loans and also government purchases,” he said. “The government has set many aspirational goals, but has not defined key metrics to reduce the risk of misappropriation of benefits by exclusive groups to the detriment of others, as has happened in the past.”

In recent history, this situation has become very evident, highlights Novaes, remembering that the incentives given to companies within the program will be paid by taxpayers. “Society pays for these policies through exemptions, subsidies and subsidized interest rates. We have seen in past experiences that the returns were not always defined”, he adds.

Local content policy is a central issue

One of the points of consensus among economists is the criticism of the “local content” policy, which defines a proportion of national investments that must be applied to the production of a certain good or service.

In the reindustrialization plan presented by the Executive, national companies will be provided with credit lines with favorable conditions to take on works under the New PAC. They will also have priority in government purchases and the mechanization of family farming.

The government must also give preference to national or local manufactured products and services, even if the price exceeds that of competing imported items by a previously defined percentage.

“The idea of ​​local content is a problem, because it also generates protectionism, which can be very complicated for us to make the industry an efficient and productive industry”, he states. “By guaranteeing a market for companies without competitiveness, the government ends up rewarding inefficiency”, he adds.

For Fongaro, the local content policy goes against the industrial development intended by the government. “Market reserve causes uncompetitive companies to survive and is one of the reasons for a country’s low potential growth”, says the economist at Julius Baer. “For an industry to be efficient, it needs to have access to the best inputs, at the best possible cost. Naturally, many of them will be in other countries. Being part of the global production chain is crucial to developing the industrial sector.”

Wrong policies, according to Fongaro, tend to lead to higher costs and lower quality for inputs in the production chain and, consequently, an inflationary effect. The government believes the economist would help more by creating conditions for low interest rates in a sustainable way and a more favorable business environment, with greater legal and tax security for the industry. “There is no point in spending R$300 or R$500 billion if the resources are poorly applied. When the money runs out, the industry will continue to be unable to stand on its own two feet”, he concludes.