STF decides this Thursday what is a fair index for correction of money – 04/19/2023 – From Grain to Grain

This Thursday (20), the STF must decide something that is the subject of debate in all contracts: what would be a fair index for the correction of money? Although the definition is restricted to the correction of resources invested in the FGTS between 1999 and 2013, it can be understood as what the highest court admits as a fair index for correction of resources.

I remind you that the resources deposited in the FGTS are promised a Referential Rate, known as the TR, plus an interest rate of 3% per annum.

Something similar occurs with the popular savings account. This has a yield of TR+0.5% per month, which is equivalent to TR+6.15% per year.

In these two applications, the TR is just the purchasing power correction index.

Thus, we arrive at the heart of the debate and we can ask two questions:
1 – Is TR fair for correction of purchasing power for investments or debt?
2 – What other indexes promoted additional return to TR in the past?

In fact, the Supreme Court may even evade this theme of index justice. It can put other issues in perspective. For example, if it was defined in a contract, is it possible to argue about fairness? We will not go into this issue.

Let’s start with the first question above. The TR is definitely not a fair index for correcting purchasing power.

In its calculation, defined by Central Bank Resolution 4624 of 2018, a reducer is applied that makes the result a much lower number than any inflation index.

A fair index for correction would be one whose calculation is based on price collections. This is true for several of the well-known indices: IPCA, IPC, IGPM, INPC, and so on.

I will present a simulation so that you understand the impact of choosing TR over these other indices.

Consider a worker who contributes R$500 monthly to the FGTS. As the contribution is equivalent to 8% of his income in the FGTS, he has a salary of approximately R$ 6,000 per month.

The table below presents the final result of this worker’s investment over the last decade, that is, 120 months.

Note that the value accumulated by the worker in a decade and corrected by the TR is 24% lower than the worst index of correction of values ​​among those usually employed and marked in blue in the table.

The consequence of this is that the result of the worker’s investment in the FGTS, which yields TR+3% per year, is worse than the most popular applications available. These applications are presented in the table above in brown color.

The total result of the investment in the FGTS was insufficient even to recompose the simple purchasing power. Note that the TR+3% return over the past decade has been lower than the main inflation indices available.

Therefore, the TR is not suitable as a value correction index, nor is the investment in the FGTS suitable as a reserve for dealing with difficult times in the future.

Therefore, it would even be possible to agree on the payment of zero real interest on income from resources compulsorily invested in the FGTS. However, it is inadmissible that a minimum income is not guaranteed to cover the correction of the worker’s purchasing power.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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