Brazil already coping with 'economic depression,' Arminio Fraga says
Arminio Fraga, founding partner of Gávea Investimentos and former Central Bank president, says the depth of the recession already characterizes "an economic depression." He is quite worried about the situation of government accounts, considering the spending with the pandemic. Adding to this "the growing political tension, with threatening aspects from the point of view of democracy, you create a vicious cycle." And when there is open talk of rupture, "of arming the population and there is no talk of inequality, of complete responses to problems that are many and complex," things sour even more.
If before there was some hope that the health issue, fighting coronavirus, would not last so long, "today it is clear that it will not be only six months. It will last more, especially here, where the responses came late and incomplete."
He is critical of the way the government is helping companies. "With a good bankruptcy system there would be not much reason for the government to get in," he says.
Mr. Fraga is worried about the risk of state solvency, with the public debt likely ending the year at 90% to 100% of GDP. If an adjustment toward fiscal balance is not made in a convincing way, the debt becomes almost a currency, with very short maturities and at higher amount than foreign-exchange reserves.
Excerpts from the interview:
Valor: The political environment is deteriorating and the economy is quite fragile. Isn't this a dangerous combination?
Arminio Fraga: These things typically go together. But the current case is more complicated than usual, because it is also a health crisis. One fragility reinforces the other, certainly. An effective response will have to encompass the three areas. But, more than ever, the leadership role of the executive branch is crucial, and it has been leaving much to desire, as seen in the famous meeting of April 22. And this creates a lot of tension.
Valor: The damages are greater in the real economy and expectation of investments, aren't?
Mr. Fraga: When one speaks of investment, often one thinks of foreign investment. You forget the main thing, which is what is happening here. Investment in Brazil has been pitiful for a long time, and with this crisis it tends to fall even more. And the public investment, which has always been a fraction of the total investment - but always relevant, reached 5% of GDP - now is lower than 0.5% of GDP, going to zero. This is a very important sign. It has to do with long-term confidence. A company that will decide to invest in any sector of the Brazilian infrastructure will think twice if there is no confidence in politics, in the economy and in the rules of the game.
Valor: Are experiencing an economic depression?
Mr. Fraga: In terms of size and depth of the recession, yes. I would say it's a depression, although not comparable to the Great Depression of the 1930s.
Valor...
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