Intense negotiations over the weekend, involving business and political leaders, led to the announcement, this Monday (30), the postponement until after September 7 of the publication of a manifesto signed by two hundred entities in the productive sector and financial. In four paragraphs and a moderate tone, the manifesto defends pacification between the powers of the Republic and calls for action focused on overcoming the pandemic and returning to economic growth.
The adhesion of Febraban (Brazilian Federation of Banks) to the manifesto that, in the view of ministers of the Bolsonaro government, including Paulo Guedes, of the Economy, would bring criticism of the economic policy, triggered an unprecedented crisis in the entity that represents the banks. Banco do Brasil and Caixa, the two largest public banks, threatened to leave the entity after consultation with Febraban members confirmed the decision of a large majority to sign the manifesto.
Knowing the content of the manifesto, far short of its bombastic developments in financial circles, the formal postponement of disclosure does not change or eliminate its negative repercussions. There is no longer any way to escape the perception that, on the one hand, there was unnecessary and reprehensible political interference by the government in public financial institutions, while, on the other, the tone and breadth of complaints from the financial sector with the conduct of economic policy increased.
In between these two ends, the episode also drew attention to the already frequent breaches of the protocols conventionally established in the relationships of central bank presidents with governments, on the part of the president of the Brazilian Central Bank, Roberto Campos Neto. Campos Neto was involved in the threat of BB and Caixa breaking up with Febraban, having agreed to the split, according to information released over the weekend.
The BC president has, in fact, shown unusual resourcefulness in his relations with the government, often infringing the recommended etiquette for the position, which calls for distance and institutional contacts with governments and their members. In the case of Campos Neto, the rapprochement with the government comes from before, but it gained frequency, by coincidence or not, after Congress approved, in April of this year, the independence of the BC.
With the approval of complementary law 179/2021, which formalized the operational autonomy that the institution almost always enjoyed in the formulation and execution of monetary policy, BC president and directors now have a fixed mandate. This four-year term, with one reelection permitted, does not coincide with that of the President of the Republic, and the holder of the position can only be dismissed in very exceptional circumstances.
It is a strict rule around the world that central bank presidents speak in official documents or in formal public pronouncements. The idea is to minimize possible political influences that might interfere with technical decisions to keep inflation under control and, in certain cases, also stimulate economic growth. Note the behavior of Jerome Powell, president of the Fed (Federal Reserve, US central bank) or Christine Lagarde, president of the ECB (European Central Bank).
It is not forbidden, although less common, for the BC president and directors to participate in events promoted by private institutions, but, in general, these must be public events or, at least, registered in the official agenda. In an effort to reduce communication noise, which tends to weaken the ability to coordinate expectations regarding future inflation, central bank presidents and directors should refrain from engaging with government colleagues.
Campos Neto, however, has been at least careless with the office’s liturgy. This year, in April, right after the approval of BC independence, he participated in a dinner in São Paulo, with businessmen and President Bolsonaro, in a political demonstration in support of the president. More recently, he was photographed at a weekend barbecue with the minister of the Civil House, Ciro Nogueira.
An article in Veja magazine, from May of this year, praised the “unprecedented protagonism” that Campos Neto had been gaining. It reported that the BC president became “an assiduous adviser to Jair Bolsonaro” and also “an articulator of the liberal agenda in Congress.” There are reports of relatively frequent meetings between the BC president and Bolsonaro in 2021, in which issues ranging from the environment to vaccines were on the agenda. This may explain the presence of Campos Neto, alongside Bolsonaro, in the official photo of the government meeting with Pfizer, for the purchase of immunization agents, in mid-June.
Not to mention the turnaround in BC communication, with notes of concern about breakdowns in fiscal policy, followed, shortly thereafter, by comments minimizing fiscal problems. Before the BC’s confirmation of independence by the STF (Supreme Federal Court), Campos Neto surprised, with an imprudent statement, although in line with the concerns mentioned in the communiqué and in the minutes of the Copom (Monetary Policy Committee) meeting in August: ‘It’s It’s impossible for any central bank in the world to do a job of holding inflation expectations in an uncontrolled fiscal environment,” he said, referring to the imbroglio caused by the fiscal bombing of court orders.
After confirmation of BC independence, however, the BC president changed the conversation 180 degrees, in a speech aligned with the government. “Is there the great fiscal deterioration, which the numbers don’t show?”, asked Campos Neto, promoting unexpected noises in BC’s communication.
It is enough to remember the criticisms of the BC’s performance and the turmoil in the economy, in the management of Alexandre Tombini as BC, during the term and a half of former president Dilma Rousseff, to understand the risks for conducting the interest and control policy. inflation, when there are doubts in the market about the effective independence of the BC. At the time, reductions in basic interest rates, amid high inflation, apparently contrary to the policy considered the most indicated, sparked accusations that the BC was yielding to political pressure from the government and, directly, from Dilma, with highly negative repercussions on the coordination of expectations regarding the trajectory of inflation and the conduct of the economy.
Risks of unanchoring economic expectations, hindering the execution of economic policy, grow when the BC president does not use the independence that the law guarantees him to maintain political distance from the government. They increase even more when the president of the Republic, in the case of Bolsonaro, a well-known interventionist, publicly shows his regret for having sponsored the BC’s independence.
To see what will happen when the ongoing hikes in basic interest rates, an instrument to contain inflation already well above the ceiling of the target system’s range, start to curb economic activity, in 2022, an election year.