It looks like a scene from a low-budget gangster movie. Four men in suits gather around a table in a dark room to plot an apparent financial scam, winking and shaking hands.
However, this is the Brazilian central bank, or rather, an illustration of what it would look like if it were given formal autonomy, according to one of President Dilma Rousseff’s recent scaremongering campaign videos. “This would mean handing over to the bankers a huge power to make decisions about your life and your family – the interest you pay, your job, prices, and even salaries,” the narrator explains, cutting to a family whose food slowly disappears off their table.
Central bank autonomy, a seemingly obscure topic in a country where at least one in 10 adults are illiterate, has become a central controversy of the Brazilian presidential election, which kicks off on Sunday and is likely to extend to a run-off on October 26.
While Ms Rousseff and the ruling PT party suggest greater central bank independence will lead to famine by allowing profit-seeking bankers to usuriously raise interest rates, the leftwing PSOL party warns it even poses a threat to Brazil’s sovereignty.
“The debate has lost all relation to reality,” says Ricardo Brito, a professor of economics at São Paulo’s Insper business school. “It’s become an electoral debate not an economic debate,” he says.
It also reveals a worrying surge of Venezuela-style socialism and demonisation of the banks, which is exaggerated by the electoral campaign but has nevertheless been on the rise for the past few years, says Simão Silber, an economics professor at the University of São Paulo. “More and more we seem to be aligning ourselves to the likes of Argentina and Venezuela,” he says.
The debate was initially sparked by Marina Silva, who rose to the top of the polls in August when she took over from the Brazilian Socialist Party’s (PSB) candidate Eduardo Campos after he died in a plane crash.
As part of a plan to return Brazil to more orthodox economic policies, the former Amazonian rubber tapper has proposed creating legislation to free the central bank from the control of the federal government.
Ms Rousseff’s attempts to put pressure on the central bank to artificially reduce the country’s high interest rates in 2012 show why the move is necessary, says Ms Silva.
“We defend the independence of the central bank because this government with its erratic policies has devalued the concept of ‘operational autonomy’ and made it necessary to institutionalise [its autonomy],” Ms Silva said in a recent televised debate.
In practice, formal autonomy would likely mean rule changes such as setting a fixed mandate for the central bank president, economists say, simply bringing Brazil in line with other major economies and most of Latin America. Colombia’s central bank has been independent since 1991 and even Argentina’s central bank is technically, although not in practice, separate from the government.
However, the PT and Ms Silva’s other leftwing adversaries have pounced on her proposal as a way to tap into existing concerns that she is both politically fickle and vulnerable to manipulation by the country’s elite.
After teaching herself to read at the age of 16 Ms Silva joined and then quit both the PT and the Green Party, and only tagged on to the PSB party after failing to set up her own party in time. Many Brazilians are also perplexed by her close relationship with Maria Alice “Neca” Setúbal, a member of one of the controlling families of Itaú-Unibanco, Brazil’s largest private bank.
More and more we seem to be aligning ourselves to the likes of Argentina and Venezuela
– Simão Silber, the University of São Paulo
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For Brazil’s investor community, the debate over central bank independence is particularly agonising.
Ms Silva, who has lost ground after being statistically tied with Ms Rousseff for weeks, is still considered their best hope of ousting the PT, which is widely despised for its interventionist policies.
However, her battle on their behalf for independent monetary policy is one few would have chosen themselves.
“Central bank independence is important but it’s a secondary issue,” says Insper’s Prof Brito, adding that it would be more productive to discuss the country’s generous inflation target band or focus on other more pressing issues such as pension reform.
There is also no evidence formal autonomy leads to lower inflation, as shown by the example of Argentina, economists say.
Liliana Rojas-Suarez, a senior fellow at the Centre for Global Development, argues that fiscal discipline is equally important to contain prices. “Central bank independence is necessary but not sufficient,” she says.
Worse still, Ms Silva’s monetary policy battle is not only unnecessary but it may end up costing investors what they want more than anything: a non-PT government.
Claúdia, a housewife from a wealthy family in São Paulo, says she plans to vote for Aécio Neves, the business-friendly PSDB candidate ranked third in the polls, but in a likely run-off between Ms Silva and Ms Rousseff she has decided to choose the latter, saying: “They’re probably all up to no good, but better the devil you know.”
Fonte: Financial Times – 02/10/2014.
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