Minister Paulo Guedes has a fixation on the strategy, which has not yet worked, of the “high exchange rate and low interest” that has the appeal of making Brazil “cheap” to foreign capital and thus making it attractive, and, additionally, fostering attraction to the privatization program, which finds it difficult to get off the ground and is essential for the modernization of the country’s weak infrastructure.
What’s more, with an absolute focus on the fiscal issue, he sees in the high exchange rate a source of revenue for the BC on gains in adjusting the price of the stock of foreign exchange reserves to transfer them to the National Treasury, in a “ride” on what represents a non-occurring gain. on the effective sale of part of the stock of foreign exchange reserves, but only an accounting adjustment that should be reversed, if the real undergoes appreciation against the dollar, which would motivate the “return” of the monetized value and transferred to BC, which, however, it is done with the issuance of new debt with the securities delivered to BC.
The other benefits for the economy are few and are concentrated on agribusiness and metal exports, while the damage to other sectors of the Brazilian economy is dantesque and causes inflation in food consumption goods as a rebound from the impacts on export prices, and that tend to spread across all relative prices of the economy.
With this reasoning, it is plausible to understand the “why” the BC does not operate in the future foreign exchange market with a preventive and incisive offer of new foreign exchange swap contracts, which could mitigate the present momentum on the price of the American currency demanded in the dollar future market. as a preservation of the value reserve of financial resources and not as a “commercial hedge”, and which leads the American currency to sustain the upward bias without there being an effective demand for exit in the cash market.
With the fiscal crisis, although Brazil has a comfortable position with respect to the exchange rate and having a net creditor position in foreign currency, the “high exchange rate” is something preferable for the government to be maintained at current or higher levels, as it is easy to attribute to the dollar , as a false deficiency of the country, the cause of the exacerbation of its price, and, with this, it misleads the objective and also the incompatibility of the interest rate which is depressed too much, but which on the other hand reduces the cost of carrying the Public Debt to the Treasury National.
Restricted thoughts, micro focused on the interest of the National Treasury itself, when reality requires it to be macro and homogeneously preserve all the interests of the country’s economy.
The dichotomy between the already in line of 18% in the last 12 months affected by the high exchange rate versus around 3% will cause a sharp mismatch in the relative prices of the economy, impacting as a factor reducing the accentuated income of the less benefited, but in reality reaching the all.
We believe it is difficult to resume the initial strategy that motivated the “high exchange rate and low interest rate” successfully in its objectives, which may increase the pressure on the “corner” in which the government faces the assistance programs to the most needy classes, for absolute lack of resources, and additionally it may impose serious difficulties in the rollover due to the low remuneration.
The strategy of “high exchange rates and low interest rates” as a last resort for the country to attract foreign investors who no longer show interest in Brazil is an attempt that could be valid, but there is a need for symmetry between interest and exchange parameters. , and this is not present, with an absolute mismatch.
“The boat is sinking” and it is unfortunate that the government, via the Ministry of Economy and BC, thinks small looking at the immediate interests and not in the macroeconomics, which needs to be boosted in order to get up consistently and gain productivity.
The alternative ideas that emerge are more tributes, in a test process on the political sensitivity around their eventual proposals, in a continuous “go and stop” that only causes insecurities and more uncertainties.
O does not see storms, but perceptible forecasts do not eliminate them and, on the contrary, place them closer than one might think and propagate, emphasizing this or that index that stems more from the input of government resources via welfare programs than fruit of the resumption of economic activity.
At the moment it is very difficult to imagine a fall in the price of the American currency in our market, even when there is an appreciation of it in the foreign market, because the “high exchange rate and low interest” are linked to the immediate interest of the government, and it would be very good if in to awaken other interests on the margins for the benefit of the country, but it is very unlikely.