Towards 5%
The government has, since 1999, maintaining a high primary surplus (revenues minus expenses excluding financial) to manage government debt. It could, instead, reduce the abnormal interest expense if he had taken a near Selic practiced in emerging countries (5% annually). In this case, a lower tax effort could have cleared this debt.
This overdose interest held by the financial market, and heeded by governments, was the poison that attacked the economic and social fabric of the country still do not totally get rid of it because it still exists, but in smaller doses.
1 Selic and debt.
The Monetary Policy Committee (Copom) is laying the Selic. Was fixed for the first time. July 1st 1996 at 25.3% per year and remained at a high level, passing through the maximum of 45% in March 1999 to start the inflation targeting regime. Just stay was below 15% from July 2006, but always in double digits until June 2009, when, because of the crisis, was maintained between 8.75% and 10.0% over a year.
From June 2010, with the strong rise in international commodity prices, is rising again to reach 12.5% ??in July 2011 and, from a year ago, happened to fall until the current 7.5% . Considering the Selic adopted by governments, there is a clear trend of improvement. In Cardoso, has averaged 21.7% per year under Lula, 14.9%, and in both years the Dilma government must close at 10.2%.
Net debt of the public sector was markedly influenced by the Selic. At the beginning of the Cardoso government, was at 28% of GDP and, even with the mega sale of public assets to privatization, the end of government reached 60.4%. The high Selic was responsible for it. At the end of the Lula government, had fallen to 39.2% and in July was 34.9%. If the Selic keep falling, it is possible that at the end of the Dilma government, you can return the next he was at the beginning of the Cardoso government.
2 Resources available.
By keeping this abnormal interest policy, the public sector toasted money to spend on average per year over the last ten years, 7% of GDP and 33% of GDP raised, left to develop their actions (funding and investments) 26% of GDP . The available resources are greater today than in the average of the last ten years. The tax burden is 34% and 5% interest, leaving 29% of GDP, ie, three points above the average of the last ten years.
This availability of resources will be expanded over the next two years, because if maintained the same tax burden (which can be considered conservative if the economy grows), the interest bill may fall in 2013 and 2014 if the government head for the Selic emerging countries of 5%.
With the increasing availability of resources, the public sector can expand its share in the social, infrastructure and economic stimulus.
But if you fall into deception financial market, which threatens the specter of inflation whose cure would be to raise the Selic (?), As indicated in Focus newsletter, will take advantage of the potential tax at your disposal.
3 Death of the primary surplus.
Another consequence of falling Selic is that eventually the government will assess and emphasize the disclosure of income tax using the concept of nominal income, which is revenue less expenses, including and especially the interest. That is the concept adopted by international bodies to identify the tax results in public budgets.
The nominal result this year should be close to 2% of GDP, improving compared to 2011, when it reached 2.6%, and if the Selic keep falling, you can walk to the end of the Dilma government for the full balance of public accounts, or is, zero nominal result.
Brazil was an exception to the misuse of the primary surplus as a result of the gauge public sector fiscal. This occurred because of the predominance of financial market analysis, which cleverly influenced economic policy to defend until recently that the Selic is the only (!) Instrument to control inflation, and this must be kept high to inhibit consumption. Thesis awkward and unreal.
Unfortunately, the analysis of financial market centered primary surplus gained space in the media, because they preached the reduction of expenses in order to pay the interest catapulted the Selic. Interest those who served in all these years to feed the profits of the financial sector.
Dried slowly this anomalous source of profits, banks will have to be effective and act to expand its lending operations. With this, the growing dispute between banks fall in the interest rate on bank loans, which is critical to unlocking economic growth.
4 Example.
Banks should follow the example of Caixa Economica Federal, which, in view of the resumption of the crisis, acted aggressively to expand its action. According to its president, "Caixa increased its portfolio with good credit that other banks would not do."
"Our portfolio has the lowest market default. Why? Because we focus on credit terms with low delinquency as property and payroll. The box is growing at this rate for five years. It's about time we broke. In 2008, we had 6% of the market. Today we have 14%. At that time, the default rate was 2.74%. Today is 2%. The profit came from $ 2 billion to $ 5.2 billion in 2011. "(Estadão of 4/9).
5. Change.
With the fall of the securities, the investments of economic agents undergo radical transformation, imposing a decrease in management fees from the banks and shift investments to other assets such as real estate and stock market. Companies are beginning to reevaluate projects that were shelved because it had prospects of return below those that could be obtained in applications for government bonds. This may be a good driver for the resumption of investments, especially in the case of companies that are close to production capacity.
The government need not fear a reduction in demand for their bonds, because, with lower interest expense, do not need to sue both the market. Not to worry about inflation because it largely originates from abroad whose prices are contained as long as the crisis that dominates Europe, which will be long.
It remains to see what policy the government intends to follow going forward. If the position quickly Selic at 5%, will have unprecedented economies to stimulate the economy.
If shy, given the financial market pressure to raise the Selic, will have lost a golden opportunity which fell to the feet. It is essential to head the Selic as soon as possible to 5% per year.
The government earns substantial resources, consumers will have less bank interest, companies greater incentive to invest in their business instead of government bonds. Let's wait.
Amir Khair Master's in Public Finance from FGV and consultant
Source: Machine Translated from "O Estado de São Paulo" |
