What the ‘mother and father of Actual’, who’re on the transition group, assume and defend

Economists André Lara Resende and Pérsio Arida were made official as members of the transition team of the Lula government to formulate, alongside Nelson Barbosa and Guilherme Mello, the first economic measures of 2023.

Despite being better known as the “fathers of the Real Plan”, starting with the “Larida” plan, their work did not stop in the mid-1990s. More recent works and declarations point in which direction Lula’s economic policy may go.

Amidst many speculations, they did not confirm whether they were drawing up an economic plan that would allow investment in infrastructure and social life, as Lula intends, with the creation of a new fiscal anchor to replace the spending cap. Both defend social investments and the need for any proposal for the country to be accompanied by reforms to improve the efficiency of public spending. Despite having worked in a convergent manner in the 1990s, their views on interest rate policy and especially on fiscal policy have drifted apart over the years.

André Lara Resende He has written seven books since 1995, the last of which, “Ideological Straitjacket”, from 2022, questions the dominant neoclassical macroeconomic theory. In Brazilian economic policy, the economist is critical of the current interest rate policy to contain inflation and the spending cap law. He defends greater indebtedness when necessary (like now), as long as the resource is well spent, with control and revisions of expenses, a point considered central. Without wanting to reduce, but with the aim of simplifying, see some points defended by the economist:

• IT IS critical of the dominant theory that predicts fiscal tightening at any cost and the reduction of the size of the State. For him, neoclassical macroeconomics has become a “straitjacket”, the title of his most recent book, which makes it impossible to formulate policies to promote investment recovery and income distribution.
• He considers it incongruous to say that the State is broke and cannot spend on infrastructure, Health and Education (due to the spending ceiling) but it can and should increase the interest rate, as it has increased in Brazil by more than 10 percentage points since 2021. For him, with this formula, there is transfer of fiscal expenditures to public debt holderswho are the richest agents in the economy, and the poor have their services compromised due to lack of resources.
• Starting from the fact of coin being today a digital record, believes in other possibilities for State funding. For the economist, countries that issue their own currency do not have, under some conditions, financial restrictions. They can expand the monetary base without creating inflationary surges, but for that they need to have control and discipline to make the most efficient state🇧🇷
• Disagree with interest policy implemented in the country since 1994. The high Selic rate, for the economist, did not help to hold back inflation and even had an impact on public debt and low growth.
• It disputes that the public debt it is a burden to be paid by future generations. For him, being the internal public debt, the holders are the surplus agents. What matters is that this money is well spent, benefiting the well-being and productivity of all: public services, investments in infrastructure, health, education and security. After the distributive effect of the debt, there will be a tax burden only if the interest rate on the public debt is higher than the economy’s growth rate. The debt/GDP ratio cannot go up indefinitely, it has to be controlled.
• O State can be employer of last resort for workers, in the same way that it is a creditor of last resort during crises (something like a way out of social programs, a Bolsa Família associated with qualification and training).
• Economic issues cannot be analyzed outside of political and social contexts. The requirement to balance the fiscal budget is a self-imposed restriction that is justified to avoid the temptation of irresponsible, demagogic and even corrupt spending, but ends up being a straitjacket that prevents fully justifiable spending. But it is important to define what expenses are justifiable and how to avoid unjustifiable ones🇧🇷

Persio Arida he is one of Faria Lima’s favorite names within the transition team and those quoted for Lula’s economic team. The main reason for this is the fact that the economist mixes an academic profile (as a public policy maker, such as the Real Plan), with his experience in government positions (he knows how the machine works), and in the private sector (understands the businessman’s head).

In her academic career, Arida studied in Brazil and abroad. At Princeton, he worked with economist Albert Hirschman, who said to him during a conversation: “It’s easy to see a model running out of steam. The good analyst observes the models that are emerging”. Alongside Resende, he is part of the PUC-RJ school, which held key command posts during the FHC government (Armínio Fraga, Pedro Malan, Edmar Bacha). See some of his visions below:

• points the low growth as the chronic problem of the Brazilian economy, due to the low dynamism and the fact that it is a closed economy. Growth is insufficient to increase per capita income and Brazil missed the opportunity to attract capital due to the lack of an environmental agenda in the last four years.
• see few advances in the management of Paulo Guedes: just a privatization of the electrical system, no progress in administrative reform, to make the State more efficient, in commercial opening, in tax reform. The only advances were those that were already underway before Bolsonaro took office: pension reform and independence from the Central Bank.
• defends the tax reform with simplification of taxes, with the unification of taxes on consumption (VAT combining PIS/Cofins, ICMS and ISS), to increase productivity. The proposal is similar to the tax reform texts currently under discussion in Congress, in PECs 45 and 110. It considers that exceptions are necessary, such as the Manaus Free Trade Zone.
• Quote the opening of the economy to the international market as an important factor to increase Brazilian productivity.
• Agrees with the anticipation of high interest to contain world inflation made by the Central Bank of Brazil from 2021 until now. For the economist, without this high the country would be in a worse situation. From now on, maintaining the rate in Brazil will depend on our fiscal responsibility and on the trajectory of US interest rates, he said at a recent event.
• Do not see reversal in central bank independencewhich he considers a great advance, and praises the current management in increasing the competitiveness of the financial sector, stimulating Open Banking and with the creation of the PIX.
• He is in favor of the R$600 income transfer program. He understands that it is permanent, and not temporary, as suggested by the discussion on the “license to spend”, but considers that it is necessary to improve the efficiency of the aid.
• Defends social investments to eliminate absolute poverty in Brazil and investments in Education to reduce inequality.
• He believes that the use of clean energy can attract investment to Brazil in a short period of time.
• On foreign trade, he is in favor of the Mercosur/European Union agreement, negotiated for decades but not yet signed. But he understands that after signing Brazil must enter the OECD and renegotiate the terms.
• It defends pre-announced phases of an economic plan as was done in the Real Plan.

Source: UOL