‘Cutting ICMS will bring problems to government accounts’, says Henrique Meirelles

Former Minister of Finance and former President of the Central Bank, Henrique Meirelles, is concerned about the measures adopted by the government and Congress to contain inflation, such as the project approved this week in the Chamber that limits the ICMS rate to 17% for products such as fuels, electricity, natural gas and telecommunications services. According to the former minister, these initiatives can bring financial problems to states and municipalities, which would have to turn to the Union in a crisis situation. For Meirelles, the fight against inflation should actually be done with a responsible fiscal policy, respecting the spending ceiling rule, which would bring confidence in the economy and could lead to a devaluation of the dollar and a drop in inflation expectations. . “The loss of revenue from subnational entities or even the federal government will ultimately generate a fiscal problem that is what has led Brazil to periodic crises”, says Meirelles, who will debut a column in Estadão tomorrow. Read the main excerpts from the interview below: As Mr. see the approval in the House of the project that creates a ceiling for ICMS? I see it as a negative measure. It generates a drop in revenue and in the collection capacity of the States. It is important that we fight this. The moment the States start to have financial problems, it will lead to a fiscal problem for the Union as well, since the States – mainly those with medium or smaller economy – end up turning to the federal government as they have done in the past. All this does not work. If the price of fuel is high, we have to work on two fundamental measures. Restoring fiscal stability, increasing confidence and decreasing the value of the dollar, which directly impacts fuel prices. And, secondly, to take a measure of greater scope, of greater impact, which is the privatization of Petrobras. Not for the creation of a private monopoly. But, yes, for the creation of three or four oil companies, dividing Petrobras, so that prices are set by competition. Cutting ICMS provides short-term relief and creates a medium and long-term problem.

Will states have to compensate for this loss in some way? That’s the problem. They start having to tax other things. It is something that will only cause problems. Government and Congress are taking serial measures to reduce inflation. How do you see the movement? We have to solve the cause of the problems, and not give painkillers, which only causes damage. The loss of revenue from subnational entities or even the federal government will ultimately generate a fiscal problem, which is what has led Brazil to periodic crises in recent decades. Will these measures have an effect to control inflation? The effect is some short-term pain reliever, but it doesn’t solve the problem. The inflation problem has to be solved, first, as I said, by restoring fiscal stability. Then, yes, we may have a fall in the value of the dollar, with Brazil taking advantage of the increase in the prices of the commodities it exports. Rising international prices normally lead to a fall in the value of the dollar, which would lead to a fall in inflation. There we have a double task, monetary policy and fiscal policy. Successful work in this area (in the fight against inflation) requires monetary policy and fiscal policy in the same direction. What made inflation become so widespread and so persistent, in your view? Exactly the fiscal insecurity, which generates a high dollar value, even with an increase in the price of commodities. In the past, the dollar often fell when exports rose. We had an increase in the price in dollars, but there was stability in the price in reais. Now, we have an increase in dollars and an increase in reais. This is one of the important causes of inflation. With distrust in the economy and no expectation of low inflation, companies in general begin preventively to raise prices. This generates the propagation of inflation for products that have nothing to do with commodities or imports. All this is the result of a fiscal policy cycle that arouses distrust, and a mismatch between fiscal policy and monetary policy. And the Central Bank has to raise the interest rate in a situation of high unemployment, further worsening the performance of the economy. like mr. evaluate the work of the Central Bank (BC)? BC is doing what it can. Now, it won’t solve much, again, without tuning in fiscal and monetary policy. Does the BC need to raise interest rates more than expected? It’s possible. But it would have to raise interest rates with a high unemployment rate. This is not a positive situation for any country.

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