Durigan says that the economy's 'bottleneck' is high interest rates: 'the one who is least to blame is the Ministry of Finance'

Dario Durigan
Washington Costa/MF
The Minister of Finance, Dario Durigan, stated this week that the "bottleneck" (obstacle) of the Brazilian economy is high interest rates.
For Durigan, this is the factor that harms private sector investments and puts pressure on Brazilian public debt - currently at 81.4% of the Gross Domestic Product (GDP), high by the standard of emerging countries.
At 14.25% per year year, the Selic rate, set by the Central Bank (BC), is the highest in the world in real terms (discounting inflation for the next 12 months) in a MoneYou ranking of 40 nations.
▶The interest rate, in turn, corrects a large part of the public debt. When it rises, debt also grows.
"In fact, the interest rate, it harms private investment and it harms public debt. Today, what hurts public debt is the interest rate", declared the minister, to g1.
Now in g1
Durigan assessed the need to "harmonize" the strategy related to public revenues and spending with the so-called monetary policy, that is, the definition of interest rates by the Central Bank to contain inflation.
The minister rejected, however, the perception that government decisions that increase spending and produce stimulus to the economy are putting pressure on the interest rate.
"I'm not looking for anyone to blame. Because then, the one who is least to blame is the Ministry of Finance because of the interest rate. (...) We have to discuss why the interest rate is at this level. The fiscal debate, it matters for the interest rate, but it is not the solution, because that is the easy answer", said the minister of Finance.
▶For economists, however, what is missing is precisely the harmonization of spending policy with the definition of interest rates. They believe that this mismatch makes it difficult to control inflation and puts pressure on interest rates. It's as if there were two oarsmen pulling the boat in opposite directions, with the government stimulating the economy and the BC trying to slow down activity.
Definition of interest rates by the BC
The Central Bank usually explains that its action on the interest rate is reactive, that is, the institution only reacts to the economic scenario.
If there is an increase in expenses and credit, which stimulate the economy and put pressure on inflation estimates, for example, the BC has to adopt a more aggressive interest policy.
Central Bank is responsible for defining the basic interest rate
Jornal Nacional/ Reproduction
The monetary authority clarifies, on its website, that the economy's basic rate, the Selic, is short-term.
Analysts observe that the interest curve in the market for longer terms (which serve as the basis for the sale of public bonds) reflects the expectations of economic agents for public spending and activity, among others, and, consequently, for inflation.
In 2023, the former president of the Central Bank, Roberto Campos Neto, assessed that interest rates are high in Brazil due to the high level of debt.
Former president of the Central Bank, Roberto Campos Neto has already linked the high interest rate in the country to the level of debt
Reuters/Brendan McDermid
"When it comes to interest, we cannot confuse cause and effect. The debt is not high because the interest is high. It is the opposite, the interest is high because the debt is high. When you are in debt, you go to the bank, and the bank analyzes that you are in debt and you do not pay the debt, the interest is high", declared Campos Neto, at the time.
Copom cuts selic to 14.25% per year
▶The financial market is critical of the federal government's strategy of increasing taxes to try to rebalance public accounts, at the same time as it increases spending. Analysts call for greater emphasis on spending cuts so that interest rates can fall sustainably in the country, and contain public debt.
Credit lines
When asked whether the granting of credit lines with favorable rates in an election year, such as for the purchase of trucks, buses, property renovations, taxis and for Desenrola 2.0, among others, did not harm a more aggressive interest rate cut by the BC, the minister assessed that it did not.
"The Brazilian credit market is worth R$600 billion per month. You're talking about R$2 billion, R$3 billion for motorcycles, R$30 billion for cars. This has no impact from the point of view of disrupting monetary policy (...) It doesn't seem to me that the policies we have implemented have a macroeconomic impact. They are specific and specific sectoral aids", assessed Durigan.
Last week, the BC reported that it had raised its projection for economic growth this year "largely" due to "fiscal and credit stimuli".
The monetary authority has stated that it seeks to slow down activity as a strategy to contain inflation and, therefore, reduce interest rates.
Fiscal adjustment and rule for public accounts
The Minister of Finance declared that the government will implement the necessary adjustment in public accounts in the coming years to try to achieve the goals set for public accounts to return to the black. According to him, this will be done through cost containment and reduction of tax benefits.
In 2027, the proposed target is a positive result of 0.5% of the Gross Domestic Product (GDP), equivalent to R$73.2 billion.
However, there is a tolerance margin of 0.25 percentage points up or down - that is, the surplus could vary between R$36.6 billion and R$109.8 billion next year.
In addition, R$65.7 billion government spending on precatório (judicial sentences) and projects in the area of defense, health and education may be left out of the rule.
For the following years, the fiscal targets are primary surpluses of 1% of GDP in 2028, 1.25% of GDP in 2029 and 1.5% of GDP in 2030.
"I think Brazil has to continue making a big fiscal effort, not a small one, to limit the growth of debt as far as the Ministry of Finance is concerned. Everything the Ministry of Finance can do to improve fiscal and harmonize monetary policy, we will do. The concern about inflation is mine too", said Durigan.
In the process of adjusting public accounts, the minister defended taxing the rich more, reviewing social programs and cutting tax benefits in the coming years.
Regarding the possible de-indexation of the minimum wage, social security benefits and spending on health and education from changes in revenue, measures defended by analysts, he stated that this is a debate for the next government.
He also said that the fiscal framework - the rule for public accounts approved in 2023 - is "viable and sustainable", despite the expected compression, year by year, of the government's free spending. The fear is that this will lead to the paralysis of the public sector.
➡The explanation is that, according to the rules of the fiscal framework, government spending cannot grow more than 2.5% per year (corrected for inflation).
➡As the so-called mandatory expenses, such as benefits, pensions and public servants' salaries, are growing above this, the space for free expenses is getting smaller and smaller - which can lead to the so-called "shutdown" of the public sector. experts in public accounts estimate that the rule will have to be abandoned, or changed, in the coming years.
"I recognize, the discretionary space tends to decrease if we do not reverse the growth of mandatory spending. And this will need to be done, but without discarding the fiscal framework. It is the fiscal framework that will allow us to accommodate the revenue and expenditure trajectory in the country. So, the fiscal framework is sustainable and it needs to be maintained", concluded the minister.

Source: G1