From Madrid – The extreme tension of Brazilian politics between the president Jair Bolsonaro and the elect Lula da Silva has achieved a point of agreement: both want to lower inflation. And to do so, one will respect the mandate of the official in charge of that task, even when he was appointed by the other. Roberto Campos Netthe orthodox president of the Brazilian Central Bank, will remain in office until 2024, having been appointed by Bolsonaro and backed by Lula.
The point of agreement between Lula and Bolsonaro is far from any ideological issue and is very pragmatic: Brazil is the only country that achieved three consecutive months of falling inflation, after the explosion in 2022 of global energy and food prices that caused the Russian invasion of Ukraine.
Campos Neto is responsible for this success by raising the monetary policy interest rates from 3% to almost 14% per year. This early and drastic reaction will allow the largest Latin American economy to sustain itself despite the inflationary storm that the world is going through.
Brazil is the only country that achieved three consecutive months of falling inflation, after the explosion in 2022 of global energy and food prices
Lula decided to support the one chosen by his arch-rival and respect the laws that provide for the independence of the Central Bank. “Campos Neto today has the same independence as Henrique Meirelles had in my government”, said the elected president of Brazil, so applauded by the Argentine government these days.
Campos Neto and his anti-inflationary policy received praise at the International Banking Conference organized by the Santander Group last week in Madrid. Faced with the specific query about what path he will follow in the face of the change of government in Brazil, Campos Neto applied the manual of prudence that usually accompanies those who occupy his position: “Central bankers do not talk about politics, much less in the face of a country that is divided. I prefer to be asked questions about inflation and not about politics.”
Without explicit references to Lula’s support, he added: “Our task is to move forward, fighting inflation and ensuring that the country has sustainable growth. We hope to be able to work in the best way with the new government.”
At the Santander seminar held in the “Financial City” where the bank’s headquarters operate on the outskirts of Madrid, financial executives from all over Europe heard his recipe. Y Campos Neto was local, since he worked 20 years in the Spanish entity.
Campos Neto and his anti-inflationary policy received praise at the International Banking Conference organized by the Santander Group
In the corridors of the conference, those who worked with him during his time at the Spanish entity point out that it is a classic chicago-boy, exponent of the most orthodox conceptions. And some put it even further to the right.
With his intense career in the corporate world, Campos Neto is not unaware of the other shore, since he comes from a family of weight in politics. his grandfather, Roberto de Oliveira Campos Netowas close to Getulio Vargas and participated in the foundation of the Bndes, the powerful Brazilian development bank. His leap from the private to the public world was the responsibility of Paul GuedesBolsonaro’s Finance Minister, who sponsored his arrival at the Central Bank.
In his presentation, Campos Neto highlighted that in the face of an inflationary crisis “a central banker can make two types of errors: do too little or do too much.” In his case, he assured that part of the success was a strong coordination between fiscal and monetary policy. And that any price to pay in terms of low economic activity is worth it and is well accepted by a society like Brazil’s, which knows what it means to live with high inflation.
In his dissertation, Campos Neto explained the complex steps he took in the face of the global crisis in the scenario that mixed post-covid with Russia’s invasion of Ukraine.
Part of the success of the anti-inflationary policy was a strong coordination between fiscal and monetary policy. And any price to pay in terms of low economic activity is worth it (Campos Net)
His main reflections were:
– “It is difficult to judge what a Central Bank does in the face of a shock like this. There are two mistakes in fighting inflation: doing too little, without achieving any anchor to control prices, or doing too much, which is not good either, because credibility is lost. It’s hard to judge in a situation like this because there are so many variables at play.”
– “We decided on a sharp increase in rates because we care a lot. Food inflation reached Brazil before other countries. We understood that inflation was going to be strong and persistent, and that is why we had to act. And we decided to act fast.”
– “Another key point to explain what we did is that Brazil is a country that has a long memory of what it means to have high inflation. When we began to see the impact of the depression on the world economy, we knew that everything in Brazil was going to have a greater impact.”
– “During the pandemic, governments were very comfortable printing money and without making the necessary reforms to grow. Today we are paying the price for it. And the important thing is to pay those bills efficiently, without adding capital taxes. If the only solution is to raise taxes, we will lose credibility and the situation will be worse”.
The big economies also began their fight against inflation and that is a good thing for Brazil, because it helps us not to import inflation from the rest of the world (Campos Neto)
– “We receive several crises at the same time. We were also impacted by the climate crisis, since there was little rain and most of our energy is hydro.”
– “There was a shock in the demand for goods after the pandemic, something that has not yet normalized. And that production of goods required more energy to produce. At the same time, the world is going through a ‘green transition’”.
– “The big economies have also begun their fight against inflation and that is a good thing for Brazil, because it helps us not to import inflation from the rest of the world”.