What will Lula gain by hitting the knife of interest, spending and state? Nothing – 02/07/2023 – Vinicius Torres Freire

For three months, Luiz Inácio Lula da Silva has been campaigning against conventional economic policy. The practical result of the platform speeches is obviously negative.

To stay with the most elementary and glaring evidence, interest rates have risen and the real continues to be devalued beyond measure, which is also a hindrance to the fall in inflation. This tightening of financial conditions begins to threaten economic growth in 2024 as well.

Why does the president act like this? Lula could have a project for change. This means proposing new institutions and methods of macroeconomic policy, for example (spending, debt, inflation, Central Bank). The PT governments never presented such a project, in 13 and a half years in power or in the 6 and a half years out of it, when they criticized “rentismo”, “austericide” and “neoliberalism”. Particularly under Dilma Rousseff 1, the conventional policy of deficit and debt control and inflation targeting was messed up —there was no institutional or method change.

Supporters of the president say that one cannot judge economic policy by his speeches, as such a policy is still under development. Whatever. Listening to speeches about what such a policy could be, those who have money and assets in general protect themselves, charging higher interest rates and keeping fewer assets in reais (the dollar rises or does not fall as much).

From Lula’s speeches so far, it seems that the president believes that a few kludges (messing up policies, techniques, methods, not changing the facts) are enough to reenact the “miracle of growth”. That is: a little more inflation (increase the target). Or force the Central Bank to “talk” (lower the Selic rate). Make the BNDES lend more, at interest from father to son, to “oppose” the BC. Having more of your people in charge of state-owned companies, even reversing the privatization (in fact, sore) of Eletrobras.

It is reasonable to discuss whether this or that Selic contains inflation or the level of the inflation target or the most appropriate type of expenditure cap. The messing up of these policies or the confusing or simplistic alternatives suggested in Lula’s speeches have only worked and will result in less growth.

An example of debate will not fit in these columns today, but there are possibilities. An interesting case is that of the United States (and Europe will follow suit) designing heavy subsidies, among other measures, for the “green technological transition”, but not only that. In terms of heterodoxies, by the way, the US has taken great care since the great disaster of 2008. But this is a serious conversation or, perhaps, for those who can.

Our problem here and now is that of screwing up or grandiose proposals, for the time being with feet of clay, such as the Central Bank controlling interest rates for all maturities (not just the very short term, like the Selic), of ignoring that the public debt will start to grow again this year without limit or even spending (going into debt) at will, imagining that, even so, you can pay the interest rate you want, with the exchange rate you want, perhaps controlling all this by force or with high inflation (it never worked, except in situations of immense war and for a short time), as new PT travel companions suggest.

Does Lula do all this on purpose? Do you want to blame this year’s low growth on someone else? No need to make such an effort, deleterious. Don’t you realize the damage you’re causing? Do you believe that gambiarras will make the country grow? In delirium of grandeur, are you detached from reality, with no one around you to say the size of the problem you cause with those knife punches?

It is a doubt and an astonishment.

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