President called monetary authority’s behavior “out of place”

06/19/2024

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President Lula — Foto: Ricardo Stuckert/PR

President Lula delivered sharp criticism of Central Bank President Roberto Campos Neto on Tuesday. At a time when financial market participants and experts express skepticism about Brazil’s economic policy, Mr. Lula said the behavior of the monetary authority is “the only thing out of place in the country.” He also criticized the volume of tax waivers and exemptions during a meeting with economic team members this week.

Mr. Lula’s comments were made in an interview with the radio station CBN, a day before the conclusion of Central Bank’s Monetary Policy Committee (COPOM) meeting. The market expects the key interest rate Selic to remain at 10.5% per year, amid worsening inflation expectations and uncertainties regarding government account management.

“We have only one thing out of place in Brazil right now. It’s the behavior of the Central Bank. This is a mismatch. A Central Bank president who lacks autonomy, who has political inclinations, and in my opinion, works more to harm the country than to help it. Because there is no justification for interest rates being as high as they are,” said the president.

Mr. Lula has been critical of the Central Bank’s decisions since the beginning of his administration. Former President Jair Bolsonaro appointed Mr. Campos Neto. With the institution’s autonomy approved in 2021, Mr. Campos Neto’s term is fixed by law and ends this year, with his successor to be appointed by Mr. Lula.

Under Mr. Campos Neto’s leadership, the COPOM also took unpopular measures in the previous administration. The committee raised interest rates in 2022, the last year of the Bolsonaro administration and an election year. In August of that year, the Selic rate reached 13.75% per year, ending a tightening cycle that reversed the monetary stimulus adopted during the COVID-19 pandemic.

Mr. Lula believes the current Central Bank chief has “political inclinations,” a view reinforced by Mr. Campos Neto’s attendance at a dinner hosted by Governor Tarcísio de Freitas of São Paulo, an ally of Mr. Bolsonaro. Commenting on the event, Mr. Lula said the economist “almost announced his application for a position in the São Paulo government.”

Mr. Freitas and Mr. Campos Neto are friends, and there has been speculation that the Central Bank president could become the Finance minister in a potential Freitas administration if the governor runs for president in 2026 and wins.

Mr. Lula questioned whether Mr. Campos Neto is willing to play the same role as former judge and current Senator Sergio Moro, who left the courts to join the Bolsonaro administration as minister of Justice. “A justice champion with political commitments?” criticized Lula.

Mr. Moro described President Lula’s remarks as a “personal attack” and “lack of institutional decorum,” claiming Mr. Lula is using the same tactics against him that were used when he was the judge in charge of the Car Wash anti-corruption task force.

In the interview, Mr. Lula said he would pick a Central Bank president committed to controlling inflation but also focused on growth targets. “The Central Bank president must be a serious and responsible figure. He must be immune to the market’s momentary restlessness,” he said.

Emphasizing his call for lower interest rates, Mr. Lula said inflation in Brazil is under control and current interest rate levels are harmful to the productive sector. According to data released last week by statistics agency IBGE, Brazil’s official inflation index IPCA rose 0.46% in May, above expectations, accumulating a 3.93% increase over 12 months.

“Inflation is under control. Now they invent future inflation scenarios. Let’s work based on reality: Brazil is currently in a good situation,” said Mr. Lula.

Mr. Lula’s comments on the Central Bank’s actions resonated in the political arena. Lower House Speaker Arthur Lira said at an event that the monetary authority’s autonomy “on the eve of the COPOM meeting increased the credibility of our monetary policy.”

Meanwhile, the government’s leader in the Senate, Jaques Wagner, said the president’s criticisms are legitimate. “I am not aware that the U.S. Federal Reserve chair engages in political acts for anyone. If autonomy is for that, it’s being misused,” said the senator.

Fiscal policy

Besides criticizing monetary policy, Mr. Lula defended his government’s fiscal decisions. He criticized the volume of tax waivers while addressing criticism of his administration for not advancing on spending cuts.

“The same people who say we need to stop spending are the ones with R$546 billion in tax waiver,” said Mr. Lula, specifically mentioning sectors like agriculture. “The rich take a portion of the country’s budget, and they complain about what is spent on the poor. That’s why I say, don’t tell me to make adjustments at the expense of the most unfavored people in this country.”

According to the 2025 Budget Guidelines Bill (PLDO), the volume of tax exemptions is estimated at R$536 billion for next year. Most of these tax expenditures are related to the Simples Nacional (a simplified tax regime for small businesses), with an impact of R$128 billion on the budget.

Exemptions for agriculture and agribusiness—sectors mentioned by President Lula—total R$66.6 billion, including the exemption for basic food staples. The Brazilian Confederation of Agriculture (CNA) did not respond to requests for comment on the president’s statements.

Earlier this week, Finance Minister Fernando Haddad said the economic team would conduct a comprehensive review of expenses, including tax expenditures. Planning Minister Simone Tebet, meanwhile, has been working on proposals to address budget rigidity, including evaluating changes in benefits raises linked to minimum wage increases. However, she ruled out changing social security benefits.

(Jéssica Sant’Ana contributed reporting.)

*Por Fabio Murakawa, Gabriela Pereira, Marcelo Ribeiro, Raphael Di Cunto, Caetano Tonet, Julia Lindner — Brasília

Source: Valor International

https://valorinternational.globo.com/