Central Bank Needs Power to Avoid Brazil Collapse, Ex-Chief Says
Central Bank Needs Power to Avoid Brazil Collapse, Ex-Chief Says
(Bloomberg) -- Brazil’s Congress has no time to waste in authorizing the central bank to purchase corporate bonds as part of a plan to avoid economic catastrophe during the coronavirus pandemic, according to former central bank chief Henrique Meirelles.
A constitutional amendment that would grant the monetary authority broader powers while ramping up spending on anti-virus measures is facing hurdles in the Senate after a swift approval in the lower house. Lawmakers need to act fast, as the economy is poised to contract 5% this year, Meirelles said in an interview.
“One of the most important measures now is allowing the central bank to directly buy credit portfolios, which would provide relief to the financial system,” said Meirelles, who’s currently Sao Paulo state’s finance secretary. “It’s up to the Senate to work on this quickly. It’s fundamental and, if it’s not approved, we may not have a solution to avoid an economic collapse.''
President Jair Bolsonaro‘s administration has drawn criticism for its delayed response to the pandemic, which has killed more in Brazil than anywhere else in Latin America. The government has approved credit lines, though bottlenecks are preventing them from reaching companies, Meirelles said. Complicating matters, some senators are warning they may not be able to vote on the spending bill this week as expected.
The legislation, known as the “war budget“, would align Brazil’s central bank with peers including the U.S. Federal Reserve that already have the ability to buy company debt as part of quantitative easing. Some lawmakers have said a lengthier debate on the proposal is warranted.
“The Senate will take its time to analyze the proposal,” Chico Rodrigues, a deputy government leader in the Senate, said in an interview. “This is a sensitive matter, especially when it comes to the role of the central bank.“
‘Preserving Life’
Congressional approval of a separate bill that would provide financial relief to states is also important so that governors can combat the effects of the crisis, said Meirelles, who also served as former President Michel Temer’s finance minister and ran for the nation’s top job in 2018.
The government’s economic team has promised to compensate states and municipalities for revenue losses in revenue with federal tax collection. Still, that proposal is insufficient, he said, as most of the money would go to states in the North and Northeast, and not to ones in the Southeast that have been hardest hit by the virus.
Read More: Brazil to Propose More Money to States to Sideline Congress Bill
The Treasury may also have to step in to help states and municipalities pay off debts to multilateral organizations. “These banks are outside Brazil’s jurisdiction, and this is still a substantial amount that will continue to be paid.”
The pandemic has prompted Brazil’s government to reverse its pledge to rein in debt and bolster fiscal accounts. The country’s 2020 primary deficit -- which excludes the cost of servicing debt -- is expected to balloon to some 500 billion reais ($96.4 billion).
For Meirelles, the priority now is to save Brazilian companies and jobs. While a contraction in gross domestic product may reach 10% between April and June, the country’s economic recovery could start as soon as the third quarter.
“People forget that, when you go back to work, you will need employees to be alive,“ he said. “Preserving life is the duty of the government. If you do that, as a result, it will benefit the economy.“
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