quinta-feira, 3 de julho de 2008

Heterodox Measures in the Combat of Inflation by Stefano Silveira

At this moment when several inflationary indexes as the National Index of Prices to Ample Consumer (IPCA, in Portuguese) - calculated by the IBGE and used by the Central Bank to fulfill the inflation goals (of 4,5% in 2008) - and the National Index of Prices to Consumer (INPC, in Portuguese) point increased above the expected by the analysts of the market in May, respectively 0,79% and 0,96%, raising the inflation accumulated in the last 12 months (IPCA of 5,58% and INPC of 6,64%) the Committee of Monetary Politics (Copom) answered with the increase of the basic tax of interests (Selic). In the two last meetings two increases of 0,5 percentile points had occurred, passing the Selic tax from 11,25% to the current 12.25% a year.

Each time this measure is adopted, aiming at diminishing the inflation, it brings some collateral effects, as the increase of the internal debt, the reduction of the productive activity and all of these factors result in a smaller growth of the Gross Domestic Product (PIB, in Portuguese), in the fall of the work ranks and in the level of income of the population. Before Copom opted for the price increase of the credit in the country, the identification of the generating factor of the inflationary increment should be cautious.

The increase of the interests will only be able to reach its objective if it is diagnosed that the inflation is of demand. In this in case the main elements are: public budgetary unbalance, correction above of the productivity and abundance of credit facilities. On the other hand, if the conclusion is that the increment of the prices is occurring because of the problems of offers (inflation of offers) or of infrastructure (inflation of costs) the antidote can become poison, a time that companies will need to continue demanding credit to a raised cost, so that they can keep its lines of production, and fatally will repass to the prices the increase of its costs. The two last ones currently seem to be the reasons of the growth of the Brazilian inflationary indices.

As an illustration of the conclusion above, it can be verified the reasons of the current international inflation and its consequences in our economy: increase of the demand for foods - overall for grains - in emergent countries such as China and India; the plantation of soy and maize for the production of biofuels, in detriment of the food sector - in this particular one, Brazilian ethanol is not inserted, therefore this renewable fuel is produced here with the sugar cane used as raw material and not of maize, as in the United States and Europe; and climatic factors such as the droughts which have devastated several regions around the globe in recent years, as the regions south and northeast of Brazil - as an example, still in consequence of the climate problems, last May the price of rice only suffered an average increase of 19,75% in the biggest South-American country.

Moreover, many emergent countries, as the ones that compose BRIC (Brazil, Russia, India and China), have been suffering, in greater or minor extension, with the lack of infrastructure for the draining of their primary and manufactured products. These nations have been presenting accelerated growth rates. In order to maintain them or even increase them it is imperative the reduction on the costs of production. The Brazilian government seems to have noticed the problem, when launching in the beginning of 2007 the Program of Acceleration of Growth (PAC, in Portuguese) - that, in spite of the proposals contained in the program “Advances Brazil”, of the Fernando Henrique Cardoso government (1995-2002), comes to be the first attempt of executing a heterodox project in the country, since II the National Plan of Development, in the mandate of president Ernesto Geisel (1974-1979).

The contradiction of the effective economic policy in Brazil is that at the same time that the governmental authorities establish a development politics, searching for a growth of the product of at least 5% a year, they had not abandoned the basic premises of neoliberalism, as floating exchange, raised tax burden, inflationary goals and primary surplus. In the same way, given that the inflation in the planet is caused basically by primary products, and that we live in a globalized world, its consequences in the internal economy are inevitable, they do not have to be fought with disharmonic measures with the economic policy in course. On the opposite, the country must fight the inflation with the increase of its production, offering more products to the domestic market, as well as to the external market. Applying the beddings contained in the PAC, using the advantage of a devaluated dollar for the importation of industrial goods and basic inputs, generating jobs and internal income, it offers will be able in such a way to come close to the demand, cooling the inflationary pointers. This is the moment to change conservative measures, be against the creation of wealth, and go for bold measures that search for the improvement of the welfare.

Stefano Silveira is graduated in Economy at UFRGS and is currently a Master student at the PPGE-UFRGS. He works for Procergs.