Lula proposed autonomy for BC in 1987 – 02/10/2023 – Market

Today, a staunch critic of the Central Bank’s autonomy, President Luiz Inácio Lula da Silva (PT) personally presented a project to the National Constituent Assembly that proposed the creation of an autonomous body to regulate currency and credit —precisely the role of the Central Bank.

The text, filed in 1987, provided that a complementary law could institute “autonomous administrative bodies, endowed with normative and police power, to regulate currency and credit and other specific sectors of the economic and social order”.

In addition to autonomy, the PT’s proposal —named “The Project for the Constitution of the Federative Democratic Republic of Brazil”— advocated the establishment of terms for its directors, with the right to reappointment.

The Constitution enacted in 1988 ended up leaving these suggestions out and dealt only with the powers of the Central Bank. But the theme was the target of new attacks by the PT throughout the 1990s and 2000s, with bills presented by PT parliamentarians in favor of formal autonomy for the institution or the setting of terms for its directors.

In recent weeks, Lula has shown discomfort with the level of interest rates in Brazil. Since starting his third term, he has been raising the tone of criticism against BC autonomy, which he called “nonsense”. The measure came into effect in 2021, under the management of Jair Bolsonaro (PL), and seeks to shield the body against possible political interference.

To attack formal autonomy, the PT has already said that Henrique Meirelles, president of the BC in his first two terms, had as much independence as the current head of the institution, Roberto Campos Neto.

A SheetMeirelles claims that Lula even promised him the formal autonomy of the Central Bank, but about six months after taking office, he had to break the deal.

“As he must remember, because he has a good memory, we had agreed that he would have formal independence when he invited me. But later he informed me that it was not possible to approve autonomy, formal independence. I said: ‘President, I am acting independently, I will continue to act independently, it’s working and will continue to work'”, he says.

Sought after, the Secretariat for Communication of the Presidency of the Republic did not manifest itself until the publication of this text.

Lula was leader of the PT group in the Constituent Assembly and national president of the party when he took the podium on the afternoon of May 6, 1987 to present the draft Constitution that provided for the autonomy of the Central Bank. In the speech, he described the document as a political letter that, at the same time, concretized the unity of the party and explained its profile and its political action.

At the end of the speech, Lula asked that the project be published and distributed to the other constituents. A Sheet obtained the full text of the draft Constitution through researcher Carla Bezerra, who has already analyzed the text in works on the meanings of social participation for the PT.

The creation of an autonomous administrative body endowed with normative power to regulate currency and credit was foreseen in article 116 of the proposal.

“Members of autonomous normative bodies are appointed by the President of the Republic, subject to prior approval by Congress”, complemented article 117. One of the rules provided that “the appointment will be for a certain period, with reappointment allowed for the subsequent period only once” , indicating the setting of mandates for its members.

Before being presented by Lula, the PT’s constitution project was debated and approved by the party’s National Directorate. The starting point was the text of the jurist Fábio Konder Comparato, who, at the request of the leadership of the acronym, prepared, in February 1986, a constitutional proposal entitled “Muda Brasil”. There, autonomy was already foreseen for the BC.

One of the 16 members of the PT’s constituency, former deputy Virgílio Guimarães (PT-MG) recalls that, at the time, the party chose not to mention the name Banco Central so that the text could be broader.

But 12 days after Lula’s speech, on May 18, 1987, PT constituent deputy Luiz Gushiken presented an amendment to the financial system subcommittee proposing a Central Bank of Brazil “with autonomy” to exercise the function of central body of the system country’s financial and monetary

Another amendment stipulated that the president of the BC would be “appointed by the President of the Republic, with a four-year term, after approval of the choice by the National Congress, which may vote on his dismissal or annul an act of the President of the Republic that dismisses him, before the end of the term. mandate”.

The device prohibited the indication of anyone who had held a position in a private financial institution in the previous four years, as well as prohibited this type of activity for the following four years after leaving the function in the monetary authority.

The proposals were accepted by the subcommittee’s rapporteur, and the text was unanimously approved.

At the time, the BC’s autonomy was defended by bank workers and by the CUT (Central Única dos Trabalhadores). The flag was also raised in at least one article published in the bulletin of the PT’s national executive, in 1987.

Lula has already said that the PT’s Constitution project would make the country ‘ungovernable’

After completing his second term, Lula made a broad criticism of the PT’s Constitution project and said in an interview that Brazil would be “ungovernable” if it had been approved.

The historical records of the Constituent Assembly show that, still in 1987, economists linked to the party criticized autonomy in the debates of the subcommittee. For this group, it would place the country “inside a vest”, with no room for economic development.

“Establishing or greatly reinforcing the principle of autonomy of the authorities managing monetary and exchange rate policy means that there is a dual command”, said Carlos Lessa on the night of April 29, 1987. He later chaired the BNDES (Banco Nacional do Desenvolvimento Economic and Social), between 2003 and 2004.

At the time, however, there was a concern to make the BC an institution more focused on monetary functions. Another desire expressed by congressmen was that the BC had greater effectiveness in monitoring possible irregularities in financial institutions, with greater protection against pressure from bankers.

In the following years, these principles continued to guide the PT’s proposals aimed at the functioning of the BC.

In 1996, José Fortunati, at the time deputy for the PT in Rio Grande do Sul, presented a complementary bill to establish that the BC would be a federal autarchy “endowed with administrative, technical, economic and financial autonomy”.

“Historically, the Central Bank’s existence has always been strongly marked by total linkage to the Federal Executive Power. In practice, the Central Bank is nothing more than a mere department of the Ministry of Finance,” said the justification. For him, autonomy would be a compromise between the situation at the time and total independence.

In 2001, Virgílio Guimarães presented a bill that provided for a mandate for the president of the BC, coinciding with that of the president of the Republic, but which shielded him from dismissal without justification.

In 2007, already in Lula’s government, he filed a new proposal, with a three-year mandate (renewable) for the president and the BC’s Inspection director.

Decisions on interest rates and currency issuance, however, would be taken by the Cepom (Executive Committee for Monetary Policy), made up of the ministers of Finance and Planning, the president of the BC and two other directors of the institution —which would give the monetary policy a more political character.

Defender of the institution’s autonomy, Virgílio Guimarães says he considers his project to be a “masterpiece”.

The current law, in force since 2021, provides for “technical, operational, administrative and financial autonomy” for the institution. The text also establishes fixed terms of four years for the president and directors of the institution, which do not coincide with that of the President of the Republic. Board members can be reappointed to office only once.

Since taking office, Lula has escalated in his criticism of the BC. After calling autonomy “nonsense”, the president said he could review the measure after 2024, when Campos Neto’s term ends. The statement was given on February 2, one day after the Central Bank left the basic interest rate stable at 13.75% per year for the fourth time in a row and issued a tough message to the government about the management of public accounts.

“I want to know what independence was for. I will wait for this citizen [Roberto Campos Neto] end his term for us to make an assessment of what the independent BC meant”, said Lula in an interview with RedeTV!.

The minister of the Institutional Relations Secretariat, Alexandre Padilha (PT), tried to put a stop to the crisis on Wednesday (8).

“There is no government initiative on changing the law [da autonomia] of the Central Bank and no pressure on any director’s tenure. The law clearly states that it has mandates and that they will be fulfilled,” he said.

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UNDERSTAND: AUTONOMY OF THE CENTRAL BANK

1. What is Central Bank autonomy?
   The rule disassociated the BC from the Ministry of Economy and made it an autarchy of a special nature. The main change was the creation of fixed terms of four years, with the possibility of reappointment, which distances the body from political influence.
2. When was the BC autonomy law passed and why?
   With the aim of shielding the institution from government interference and creating fixed mandates, the bill was approved in 2021 and then sanctioned by then-president Jair Bolsonaro (PL).
3. Can board members be fired?
   They can leave office when they perform insufficiently to achieve the BC’s objectives, with a decision by the President of the Republic and the approval of the Senate in a secret ballot being necessary. They may also be exonerated at their request or if they contract a disease that makes it impossible to hold their position. In addition, they may be dismissed if convicted, by means of a final and unappealable decision or issued by a collegiate body, for the practice of administrative impropriety or a crime whose penalty temporarily prohibits access to public office.
4. How was the first term defined fixed?
   The president and two directors will have terms until December 31, 2024, and the others will end their periods in a staggered manner. Two of them have already ended their term on December 31, 2021. The next two end on February 28, 2023; and two others, on December 31, 2023.