Brazil’s central bank chief has put his institution at the heart of President Jair Bolsonaro’s sweeping programme of economic reforms, promising to roll back regulation to lure back investors.
Roberto Campos Neto said Brazil wanted to “democratise” the financial sector and usher in more private capital as the country fights an economic downturn.
“We need to reinvent ourselves with private money,” Mr Campos Neto told the Financial Times in his first interview with international media since taking the job in February.
Mr Bolsonaro took office this year after campaigning on a rightwing deregulatory agenda that he said would save the country, once a darling of emerging market investors, from the “brink of socialism”.
However, his economic team is under pressure to show results. While the country has avoided recession this year, growing in the second quarter after the economy contracted in the first three months of the year, unemployment remains high at nearly 12 per cent. Economists point to tepid industrial production, weak investment, lagging technological standards and decaying infrastructure.
Since his inauguration, the president has largely left the economy in the hands of Paulo Guedes, the finance minister, and Mr Campos Neto — US-educated policymakers who have embarked on an ambitious agenda of deregulation and changes to Brazil’s costly social security regime.
Mr Campos Neto said Brazil was going through difficult times but public spending was not the answer.
“We need to cross the desert to get to the promised land. The desert is going to be long and not everyone is going to make it. But we don’t have another choice,” the 50-year-old central banker said.
We used to say Brazil spent all its time trying to find public solutions to private problems. Well, that didn’t work
-Roberto Campos Neto, head of Brazil’s central bank
“What are we going to do? Disrespect the [fiscal] ceiling and start spending public money again? We all know that does not work.”
Market reaction to promises of rectitude has been mixed. In the 12 months to July, foreign direct investment in Brazil reached almost $95bn, up from $67bn the previous year. However, in the 12 months to August, it dropped to $71bn, according to central bank data.
“[Attracting investment] is a continuous process of gaining credibility. Credibility is very hard to get and very easy to lose. Unfortunately for us, global growth is not going favourably and people are showing signs of risk aversion,” Mr Campos Neto said.
“So even though rates are low and that should be conducive for people putting money in emerging markets, when you look at flows it has been very erratic. Because there are trade tensions, there is political polarisation, there is Brexit.”
With inflation under control at less than 3 per cent, the central bank has slashed its benchmark interest rate to a record low of 5.5 per cent this year, with more cuts forecast by economists.
Under previous administrations, public spending in Brazil rose sharply, supporting growth but fuelling investor concerns about the nation’s fiscal stability. The IMF forecast that gross public debt would hit 90 per cent of GDP this year.
Many of those worries appear to have been addressed by a landmark pension reform package, which looks set to become law in coming weeks.
With that reform under way, Mr Campos Neto said the central bank, which falls under Mr Guedes’ finance ministry, now wanted to “democratise” the financial sector with deregulation of everything from capital markets to private equity and the property sector.
On capital markets, the central bank president said he wanted to ensure “smaller companies can raise capital through equity and bonds”, as well as cutting red tape on foreign exchange, acquisitions and start-ups.
On property, he said Brazil needed to remove a tax on the incorporation of real estate funds.
“We used to say Brazil spent all its time trying to find public solutions to private problems. Well, that didn’t work. Now we are trying to find private solutions to public problems,” the former Santander executive said.
“We are removing bureaucracy for opening [bank] accounts, for company funding, for new financial platforms. We changed regulations . . . to treat foreign capital the same as local capital.”
Business has long complained of Brazil’s burden of red tape, with tax law being a notorious example. A midsized Brazilian company takes almost 2,000 hours to prepare and pay taxes, according to World Bank data — by far the most in the world. By contrast, a US company takes 175 hours and a UK group takes 105 hours.
“We don’t want to tell people what to do. We want to tell people the government is going to be as small as we can be and we want to incentivise competition,” he added.
Foreign investors have historically fretted over the propensity of Brazilian presidents to intervene in markets for political ends. Mr Campos Neto said that Mr Bolsonaro had ended this with a more hands-off approach.
But the far-right leader has brought his own problems, most notably his aggressive rhetoric and tense relationship with Congress. Since his inauguration in January, the Bolsonaro administration has lurched from controversy to controversy, including a recent furore over fires in the Amazon, which prompted boycotts from US and European companies.
Mr Campos Neto acknowledged the need for better communication, including laying out more clearly what the government had already delivered.
In addition to a slew of financial deregulation and the imminent passage of the pension reform bill, he pointed to two trade deals with the EU and the European Free Trade Association.
The central bank has also pinpointed microcredit as a key area for expansion and plans to “at least double the amount available in the short term”.
“We need to do better in microcredit. It is a kind of credit that generates jobs as well as financial education. Jobs plus financial education equals savings, which is something we need,” Mr Campos Neto said.