Pedro Parente, Eduardo Guardia, Mansueto Almeida, Amaury Bier and Carlos Kawall. This team, made up of former members of economic teams from previous governments, defends the partial or full removal of court orders (judicial debts that the Union is required to pay) from the spending ceiling to avoid a moratorium and an increase in legal uncertainty.
For them, there are risks in dividing up to ten years the precatório included in a Proposal for a Constitutional Amendment (PEC) sent by the government to Congress, which is facing resistance and has generated turmoil in the market.
The PEC was the solution found by the Minister of Economy, Paulo Guedes, after the Judiciary presented an expense of R$ 89 billion with the payment of these court rulings in 2022 – an expense that the government claims it cannot accommodate in the Budget without compromising public policies .
Among the solutions considered possible is to remove from the ceiling (the rule that limits the advance of expenses to inflation and is the government’s anchor to indicate the sustainability of the accounts) only the “excess” growth of judicial debts, that is, , the approximately R$ 30 billion increase above the forecast for 2022, maintaining a similar rule for the following years. Another option is to remove all expenditure on court orders from the ceiling and recalculate the limit since its origin, in 2016.
“The precatório is a debt, period. The installment payment does not solve. The idea of retroacting is good”, says Pedro Parente, former minister of Planning, of the Civil House and former executive secretary of the Ministry of Finance in the FHC government. He observes that government expenses are calculated on an accrual basis, with a record of release at the time the event takes place. “If the regime is of competence for expenses, the installment payment does not change anything. You have to recognize the expense immediately”, explains Parente, current chairman of the board of directors of BRF.
Former finance minister in the Temer government, Eduardo Guardia believes that, given the magnitude of the increase in court orders, the best solution is for this expense to go beyond the ceiling. According to him, when removing the precatory expense from the ceiling, it has to be reduced. “The ideal would be for the average annual amount actually paid for precatório in recent years, without considering the expected growth for 2022”, he says.
According to Guardia, when the ceiling was created, the debt of precatories was in an evolution compatible with the growth of public expenditure and it was thought that it made sense for this expenditure to remain within the rule. “The spending ceiling is a very important instrument that we created to contain the government’s current expenses so as not to increase salaries, increasing current expenditures.”
A partner at Gávea and former executive secretary of the Ministry of Finance, Amaury Bier says that the installment payment is an inappropriate “pseudo-solution” to accommodate the R$89 billion bill. In his assessment, it makes no economic sense for the Union to pay a portion of this debt and get into debt to pay the rest in installments, instead of paying 100% of the debt and indebted in the same way. “Why make this mess? It’s just to say ‘I’m here fulfilling the ceiling?’ For what?”.
Director of ASA Investments and former Treasury secretary in the Lula government, Carlos Kawall also advocates an alternative solution that does not involve the creation of an asset fund to settle the court orders, provided for in the PEC, and the payment of installments, even if, exceptionally, there is some extra ceiling space, “preferably on a temporary basis”.
Another former Treasury secretary, Mansueto Almeida, in an article in Brasil Journal, recommended a negotiated solution, not imposed with a permanent rule like the government’s PEC. “Despite the good intention of the government in proposing the creation of a fund with revenue from privatizations and concessions to pay precatoria that would be paid in installments, this proposal has contributed much more to the increase in uncertainty and fiscal risk”, wrote Mansueto, who is today chief economist at BTG.
According to Thiago Pessoa, responsible for the trading desks of the bank Morgan Stanley for Latin America, from the investors’ point of view, the payment of payment in installments as proposed is seen anywhere in the world as a moratorium. “It creates an institutional perception, in the year before the election, which is very bad for the Brazilian market”, he says. For him, this is an unpredictable expense and, since then, maybe it shouldn’t have stayed inside the ceiling. Among the alternatives on the table, the economist considers that removing from the ceiling what exceeds 2.6% of net current revenue would be an option in the “Sofia’s choice” that has to be made by the government.
Information is from the newspaper The State of São Paulo.