Brazil Central Bank Is Rising Above Political Turmoil—for Now

(Bloomberg) -- The political tranquility that Brazil’s central bank has enjoyed during President Jair Bolsonaro’s first months in power will be put to the test as the fight for its long-sought independence approaches.

While insults and infighting have gripped Brazil’s Congress, Supreme Court and even Bolsonaro’s own family, the monetary authority has stayed above the fray. Now, as the central bank’s new President Roberto Campos Neto gears up his legislative and regulatory agenda, that stands to change.

The current calm masks the rare situation that, unlike in peer countries including Mexico and Chile, the central bank is still fighting for legal independence. Former bank head Ilan Goldfajn won praise for slaying inflation and regaining credibility, but failed to gain support for a bill shielding the institution from political meddling. A renewed push that’s set to come later this year under his successor is likely to expose the bank to greater scrutiny.

"For now, the central bank is avoiding suspicions and is staying out of the crosshairs," said Andre Cesar, a political analyst at Hold Assessoria Legislativa. "Once the independence bill starts to advance in Congress, the central bank will be in the spotlight, and political pressure should increase."

Campos Neto, 49, sailed through his Senate confirmation in February by a wide margin, and his first hearings before Congress have been smooth, with few questions from lawmakers. Likewise, the bank’s first monetary policy decisions under its new leadership ruffled no feathers.

Stronger Ties

Still, the central bank has faced political pressure in the past. In 2014, former President Dilma Rousseff demonized the idea of bank independence during her re-election campaign. Without protection from political interference and amid an increasingly polarized environment, there’s a chance such influence could return.

In a press conference last week, Campos Neto said independence would be a focal point of policy makers’ efforts in Congress going forward, declining to give an exact time frame for the legislative push. The former Banco Santander executive, who was flanked by nearly the entire bank board, also vowed to seek stronger ties with lawmakers.

In Brazil, the central bank head enjoys the same status as government ministers. The institution can make legislative proposals, though they must be steered first through the presidency before being sent to Congress.

"Relations with Congress are very important," Campos Neto said. "We have a very broad agenda with several measures, many of which are in the form of legislative bills. We need support."

It’s premature to discuss the amount of support that a bill for central bank independence would have in Congress, according to Arthur Lira, lower house leader of the centrist PP party. Whether the proposal gets approved will depend on the broad political mood at that time, said Lira, a long-time lawmaker. Legislators are currently focused on debating the government’s pension reform proposal.

"I don’t agree with this idea," Lira said about central bank independence. "Brazil still needs to adjust a lot of things in the economy."

Maia’s Priority

For Baleia Rossi, lower house leader of the MDB party, the central bank’s hand has been strengthened by support from lower house Speaker Rodrigo Maia, who’s arguably Brazil’s most influential lawmaker. "Bank independence has a chance to advance because Maia, together with the government’s economic team, has said it’s a priority," Rossi said.

The central bank declined to comment on this story.

In April, the government submitted its central bank independence proposal, which includes fixed terms of 4 years for board members, and policy makers are now waiting on Maia to put it to a vote. Even with a reform-minded administration, the bill will still face an uphill battle in Congress, according to Paulo Pereira da Silva, president of the Solidariedade party.

"Many people here don’t even know what the central bank really is," he said in an interview. "I don’t think the central bank independence bill will advance quickly."

To contact the reporters on this story: Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net;Samy Adghirni in Brasilia Newsroom at sadghirni@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Matthew Malinowski

©2019 Bloomberg L.P.