The Central Bank’s Monetary Policy Committee (COPOM), under the command of Roberto Campos, maintained the thunderous rate of 13.75% for SELIC interest (which serves as a reference for all other interest rates in the country). Lula criticized the decision. Former Central Bank presidents Armínio Fraga and Henrique Meirelles said the interest rate is high due to uncertainty about public spending and fiscal responsibility.
By: Gustavo Lopes Machado
They say that Lula’s criticisms jeopardize the autonomy of the Central Bank and would be a “shot in the foot”, since uncertainties about autonomy would tend to keep interest rates high.
For his part, André Lara Resende, an economist and banker associated with the origins of the Real Plan, which the Lula government has supported, defended reducing interest and says that raising it would benefit a rent-seeking sector (which lives exclusively on income), in detriment of those who make productive investments.
The role of the interest rate and public debt
SELIC is the interest rate paid on domestic public debt securities. Whoever buys public debt securities lends their capital to the government. Instead of receiving the profit of a productive investment, you start to receive the interest of the SELIC rate, paid by the government.
Roberto Campos and others defend “fiscal responsibility”, which means adjusting public spending on social aid (Education, Health, infrastructure, Social Security, etc.) to guarantee payment of interest to debt creditors. If this does not happen, the risk of default in the future increases and interest rates must rise to offset the risks and attract new creditors.
But this argument is rather strange, because, in the name of “fiscal responsibility”, interest must be kept high and thus blow up public spending with interest on the debt. Lara Resende defends that, after all, the Brazilian public debt is not so high. It is at the same level as other countries similar to Brazil and below that of the dominant countries in world capitalism.
But it is worth asking: If this is the case, how to pay such a high amount in interest and amortizations (reducing the value of the debt through the payment of installments), when the public debt amounts to billions of reais?
The solution would be the so-called debt refinancing. In other words, as if by magic, new public debt titles are sold to pay interest and amortize the existing ones. Debts are paid with new debts. This is how public debt explodes. But this is just the beginning. All the problems seem to be solved. Debt is not a problem since the government can issue as many debt securities as it wants. Unfortunately, the problem is not that simple.
The inflation problem
Public debt securities and the interest paid on them regulate the volume of money issued in the economy. When it repurchases public debt securities, the Central Bank puts more money into circulation, and withdraws it when it sells.
All banks are directly or indirectly linked to the Central Bank. The lower the interest, the cheaper the credit will be and we will have a greater injection of currency into society. When interest rates are high, the trend is the opposite. Therefore, the interest rate is used as a mechanism to contain inflation, reducing or expanding the amount of money in circulation.
That is why Roberto Campos says that a high SELIC is necessary to contain inflation and thus avoid the erosion of wages, maintain the purchasing power of the population and guarantee stability for businesses.
If we reflect carefully, we will see that this argument explains nothing. When should interest be high and when should it be low? Why does a greater amount of money in circulation, with cheaper credit, generate inflation?
The difference between capitalist and imperialist countries
Let’s look at the cases of the dominant capitalist countries. In the 2008 crisis, for example, the United States financed a large part of state aid to private companies that went bankrupt, one after another, with public debt and, at least at that time, there was no significant inflation. These days even these countries are failing to do this and inflation has skyrocketed in the US.
The example is enough for us to understand that there is no determinism between the interest rate of the Central Bank and inflation. Because?
Money does not float in the clouds. We have inflation when the growth of the monetary issue is not accompanied by the production and circulation of merchandise, whose value is expressed by money. The circulation of money responds to the demands of the circulation of merchandise, such as capital, and not the other way around. The difference between Brazil and the dominant or imperialist countries is that, in the latter, their capitalists own most of the capital that circulates around the globe.
In a country like Brazil, increasingly deindustrialized, ever further down the international division of labor, the circulation of money is unstable because the production and circulation of merchandise are also unstable.
By not controlling the capital of much of what is produced in the country, by selling low-value-added products and buying high-value-added products, the country’s wealth is reduced. Above all, in the case of the working class, with an increasingly reduced, unstable, precarious and less qualified job offer. In the case of the capitalists, however, there is a way out, an escape valve: and this is precisely the public debt.
How does it work? Mechanism for the rich to get richer
Increasingly, there is no way for capitalists to productively employ the capital they accumulate. On the one hand, because they do not have the conditions to migrate that capital to cutting-edge technology and higher value-added sectors, since they are foreign-owned and do not have the technology to do so.
On the other hand, due to the stagnation and decline in the consumption of the working class that buys these products. The State guarantees the profitability of this capital in the form of public debt titles, extracting from society, as a whole, a mass of values through taxes, including small and medium-sized capitals, and directing those who own titles public, mostly large businessmen and capitalists.
As a result, these entrepreneurs permanently suffer from something like a split personality. They want low taxes to reduce the price of goods, which makes possible an increase in sales and the scale of production. At the same time, they want “fiscal responsibility”, that is, a reduction in public spending, maintaining taxes so that the State pays with interest on all that sleepy capital that it has in its arms.
Thus, Lara Resende is right when she says that the “Public debt provides a service to savers, companies, the rich, rentiers and all agents in the economy who need to transfer purchasing power over time without taking risks”, as he wrote in an article published in “Valor Econômico”, on 02/07/2013.
But note well. He doesn’t see any problem with this mechanism. He also defended that if the State paid all the public debt “the economy would have a hard time staying healthy”. After all, the “domestic public debt” es “an indispensable public good”. Now, essential for whom? Obviously, for “the companies, the rich, the rentiers”. But not only.
Debt is also essential to keep running all that crazy and irrational machine that characterizes the inner workings of capitalism. It is the only way to absorb all the capital that does not find new places of investment, leaving it in the hands of the State, without producing anything, and, even so, ‘producing’ interest at the expense of the entire society.
Exit: a program of workers for the interests
There are no doubts in keeping the interests high for the general population and the working class. First, because that increases your debts. Second, because it allocates part of the taxes to pay interest to a group of large rentiers. For this reason, reducing interest is essential, but it is not enough if, together with this, we do not stop paying the public debt to rentiers and if we do not advance in the nationalization and nationalization of all banks and the financial system.
But the government did not take any effective measure, not even to lower interest rates, much less to overthrow Campos Neto or end the supposed autonomy of the Central Bank. Furthermore, Lula and the critics of high interest rates do not question this crazy mechanism in which the big owners of capital earn, either by exploiting their businesses or by paying interest, at the expense of society as a whole.
Removing Roberto Campos, a Bolsonarista, from the BC presidency would be optimal. But who would the PT put in his place? Wouldn’t it be someone linked to the banks or capitalists like Lara Resende himself, already mentioned for the position?
It would be important to end the autonomy of the BC, since this supposed autonomy means being under the direct control of the bankers and the market. But, if the government chooses someone to fairly please the bankers, then the Central Bank will be, in practice, controlled by the same as always, changing only the means through which capital exercises that control.
In capitalism there is no autonomy of the financial system
Basically, when Lula and Boulos (PSOL) criticize the autonomy of the BC, it is not because they defend that it does not meet the interests of the capitalists, but rather that they make a monetary policy that pleases the sector that defends low interests, such as the car assemblers and banks, such as Bradesco, concerned about the high delinquency rate. They only defend that, at this moment, the interests could be reduced a little. Limiting the debate only to this aspect is to remain in a vicious circle that does not resolve the lives of workers.
In capitalism, the autonomy of the BC and the autonomy of the State are always relative and ultimately controlled by the power of capital itself. The interest rate of the BC is actually defined by the needs of different bourgeois sectors in the capitalist production itself and the disputes of the bourgeois factions.
The margins for maneuver are limited and, when the uncontrollable capitalist economy requires more or less monetary issue, a greater or lesser fraction of the capital asleep in debt securities, sooner or later interest rates will rise or fall.
In addition to arguing for an immediate interest rate drop, structural measures are needed. Without that, it is not possible to lower the interest rate in a lasting and consistent way. The only way out is the social appropriation of private wealth, beginning with the largest capitalist companies operating in the country.
That is to say, to prevent national resources from migrating abroad and, instead of submitting to abstract wealth, as capital, to submit the produced and available wealth to a conscious project of national development, of rational and planned appropriation of natural resources.
Lower interest indeed!
End the supposed autonomy of the BC!
Not paying the public debt!
Nationalize the banks and nationalize the financial system!
Article published in www.pstu.org.br, 1/3/2023.-
Translation: Natalia Estrada.