Lula wants an inducing state, but the government has little capacity to invest

Alternating his agenda between negotiations with the Centrão and international trips, President Luiz Inácio Lula da Silva bets, in the economic sphere, on the re-edition of “showcase” programs of his previous governments, giving a new chance to interventionist measures with questionable results.

With the third version of the PAC, Growth Acceleration Program, Lula promises the consolidation of the State as a promoter of development in the country, in the best “Xi Jinping style”, the president of China.

“It is important that we respect the role of induction of the State (…) The State exists exactly for that reason, to say how things should be done”, Lula spoke to an audience of supporters, executives and representatives of a portion of the national GDP present at the launch of the PAC, in August.

The PT’s speech translates the idea, rooted in the national left, that the State should be the main engine of development. The comparison with the Chinese president – ​​who does not believe in market forces as a solution to problems, nor does he see space where the Communist Party cannot or should not intervene – is an inevitable irony.

In China, it is the State that controls most of the largest companies in the country, as president Luiz Inácio Lula da Silva modestly rehearsed, with the attempt to interfere in Vale and Eletrobras.

More recently, the government put two of its ministers on the board of directors of another private company – Tupy, a multinational in the metallurgy area. Anielle Franco, from Igualdade Racial, and Carlos Lupi, from Previdência, were appointed by BNDESPar, a BNDES holding company, and will replace two career professionals at the bank.

We did not reach the level of state capitalism in China, however, the statist belief was predominant throughout the country’s industrialization process, including military governments. It is opposed to the principles of classical liberalism, which preaches a lean State, focused on individual rights, such as security, justice and free market.

The reintroduction of the PAC is the crowning of the mindset of the inducing State, repeating the ambitious strategy of attacking all fronts at the same time and promoting, in the words of its former Minister of Finance, Guido Mantega, at the time of the first version of the program, in 2007, “social-developmentalism”. The result, as it turned out, was not what was expected.

During this period, between 2007 and 2010, with the world economy booming and government revenues as well, the PAC included 1,646 works and project studies with an estimated value of R$ 504 billion. In 2009, already in the middle of the global crisis, the government increased spending by R$ 132 billion for the period, aiming to face the global recession. In the Dilma government, in 2011, came the PAC 2, promising investments of R$ 955 billion until 2014.

Even though public investment has increased thanks to the program, this has not meant efficiency in spending. The balance of the two programs was an accumulation of execution failures, delays, stopped works and accusations of overbilling and corruption.

For the current edition of the PAC, total investments are estimated at R$ 1.7 trillion, considering the Union Budget, state money and private resources, of which R$ 1.4 trillion will be disbursed until the end of Lula’s term . There are more than a thousand works in all states.

Pedro Malan, former finance minister in the Fernando Henrique Cardoso government, criticized the ambition of the program. “It is known that when everything is a priority, nothing is a priority (…) The importance of selectivity and criteria in choosing projects is known”, pointed out Malan in an article in the newspaper “O Estado de S. Paulo”.

Private initiative will play a central role in the program

Although highlighting the role of the State, the participation of the private sector is the largest within the PAC, with provision for concessions and public-private partnerships (PPPs). There will be R$ 612 billion in private investment and R$ 371 billion in the Union Budget. According to the government, R$ 362 billion in financing and R$ 343 billion in state funding are also planned, most of which are Petrobras projects.

For Sérgio Lazzarini, professor at Insper and author of two books on state capitalism in Brazil, the public presence in investments, although still strong, lost ground to private initiative from the 1990s onwards – first with the liberalizing winds, and more recently with the “aid” of the public accounts deficit, which brought down the government’s investment capacity.

Data from recent years, by the way, call into question the thesis according to which the public sector needs to increase investments so that the private sector can also do so.

In 2021 and 2022, federal Executive investment fell to 0.6% and 0.5% of Gross Domestic Product (GDP), respectively, the lowest levels in the Treasury’s historical series, which began in 2008. Total productive output (which includes private sector contributions) increased in these two years, approaching 19% of GDP, after five years at around 15% or 16%, according to IBGE data.

For Lazzarini, the role of the public sector is primarily the creation of an environment conducive to private investment. “The State should focus on infrastructure and, especially, on sectors and locations where there is no interest from the private sector”, he believes.

With specific regard to infrastructure, a survey by consultancy Inter.B over the period from 2019 to 2022 reveals that public investments (including state, municipal and state) were close to 0.6% of GDP in the period, while total investment (that is, including the private sector) expanded by 0.35% of GDP from the beginning to the end of this interval, reaching 1.86% of GDP in 2022.

According to economist Cláudio Frischtak, president of Inter.B, the projection is that total investments in infrastructure will reach 1.94% of GDP in 2023. This is still little. “Despite the gains, there is an estimated need of 4.2% of GDP over the next two decades for the modernization of the sector. We are still far away”, says Frischtak.

The market does not see a scenario conducive to investments

Market analysts are skeptical about the attraction of investments in the current scenario. It is worth remembering that in 2007, in the first PAC, the good international winds and the boom in commodities boosted the economy, the export of grains generated record revenues and guaranteed the surplus of the Treasury accounts, which could invest more.

Today the country has an exorbitant gap in public accounts and the Minister of Finance, Fernando Haddad, is facing a crusade in Congress to approve projects that allow him to dream of fulfilling the fiscal framework goal of zeroing the primary deficit by 2024.

The lack of money is such that the Union Budget for 2024, recently sent to Congress, foresees only BRL 69.7 billion for investments, just BRL 1.2 billion more than the “floor” determined by the new fiscal framework , corresponding to 0.6% of GDP. In other words, PAC and all, federal investment should remain at the historically low levels reached in the last two years.

On the side of private investments, local interest rates, still high, and the external scenario, with high rates in rich countries, restrict disbursements. “The president seems to have stuck to his first terms and thinks the country is the same. This is the feeling that the market has”, evaluated Gustavo Cruz, chief strategist at RB Investimentos, to InvestNews.

Central point is project governance

In addition to ignoring the current scenario, President Lula does not seem to give due weight to the correction of errors in previous versions of the PAC, which became more known for their problems than for concrete results.

In 2019, the Federal Court of Auditors (TCU) found that 2,914 PAC works – 21% of contracts – were paralyzed 12 years after the start of the program.

Even today, according to TCU, there are 5,344 works inherited from PACs 1 and 2 without completion. Of these, 2,688 are stopped. The estimate is that the government will need to disburse almost R$ 44 billion just to complete the projects of past versions.

For Sérgio Lazzarini, more than volume, what is essential is the quality of investments, execution capacity, efficiency in management, collection and evaluation of results. “It is necessary to improve the instruments of governance in public management and transparency of contracts”, he says.

Frischtak also warns that the government must reject populist temptations and invest in improving governance. “Executive decisions with a fragile technical basis generate waste and misallocation of public resources. The country is already mature and informed so as not to accept distorted ways of making public policy”, points out the 2023 Infrastructure Letter, published by Inter.B.

On the private side, the consultant believes that there is no way to guarantee investments without improving the institutionality of the business environment in the country. “Companies need greater legal certainty and regulatory predictability,” he says.

For Lazzarini, among so many challenges for development, the country does not have efficient institutional maturity capable of creating robust shields to the command and dismantling of governments. It recalls the State-owned Law, modified by a monocratic decision of the STF. “Without a robust state scheme oriented towards transparent public objectives, the results are compromised, wherever the investments come from”, he says.