Author: Andrea Assef

PHOTO: French workers protest against government policies to combat the crisis in Marseille on March 19, 2009

On the 12th of March, the Board of Directors and the Advisory Council of ETCO * met for a debate on the impacts of the global financial crisis in Brazil. The meeting was chaired by the chairman of the ETCO Advisory Council, Minister Marcílio Marques Moreira. When opening the debate, Dr. Marcílio quoted an article by the American journalist Thomas Friedman, published on March 11 in the prestigious newspaper The New York Times. Under the heading “This is not a test. This is not a test, ”Friedman said that the current economic crisis has the destructive power of a Big One (the expected earthquake that would wipe out the California region in the United States). Friedman also compares the current moment with some of the worst in history, such as August 1914, the beginning of the First World War, the Japanese attack on the American base at Pearl Harbor in 1941 and September 11, 2001. “The gravity of this crisis is already perceived in Brazil. The crisis has come here and will stay with us for some time. In 2009, there will be no improvement ”, says Marques Moreira. "We had five years of improvement in Brazil and frustration came, and when it comes to a moment of euphoria, it has a much more negative impact," says the president of the ETCO Advisory Council.

According to him, the improvement in the Brazilian economy was due to a healthy macroeconomic environment and the performance of the foreign market, which bought commodities and other products from Brazil, as there was practically unlimited international liquidity. Now that must change. According to the chairman of the ETCO Advisory Council, there was a spurious symbiosis between the United States and China. The US, for political reasons after 11/1, threw the interest rate at 1892% per year, which spurred unruly consumption; Meanwhile, China, to sell its products, kept the exchange rate devalued. "That is, it was macroeconomic errors by governments that contributed to the crisis." For Marques Moreira, one of the main impacts of the crisis in Brazil will be in the fiscal sphere, mainly in the municipalities and in the States. “There will be a drop in revenue and the primary surplus. This will be more intense with the reduction of the companies' revenues, which will result in less revenue. ” The consequence of this, he ponders, is that it will generate more intense fiscal will on the part of the government and, at the same time, there will be an increase in tax and labor informality. According to Marques Moreira, there will not be a currency crisis, but fiscally it will be very serious. What worries him most, however, is what he called the “indirect product of the crisis”, which would be a possible crisis of confidence in the functioning of a market economy, which may lead the government to take the wrong measures. Marques Moreira recalled the historic episode of Encilhamento, in 1895, when the then Minister of Finance, Rui Barbosa, decided to put a large amount of money in circulation in the square, with the objective of expanding consumer markets and promoting economic growth. The measure, however, generated an increase in inflation, which caused a serious financial crisis. This resulted in a law of 1965, which restricted several freer activities on the capital market. "In fact, it froze the capital market until XNUMX," he says.

In the opinion of Victório De Marchi, chairman of the ETCO Board of Directors, the effective cause of the crisis was the treatment given by the United States and copied by Europe for complete deregulation of the financial market. "Some banks were leveraged up to 50 times, a level well above the limits established by the Basel Accord, which states that banks must have a capital reserve of at least 8% of the weighted assets volume of the financial institution," he said De Marchi. "The world will have to work with a lower volume of credit by 25% to 30%, since part of the previous volume was fictitious, did not exist", says the chairman of the ETCO Board of Directors.  

According to Marcílio Marques Moreira, this crisis not only threatens faith in the market economy, but also reduces confidence in economic policy and ethics. Professor Maria Tereza Sadek, senior researcher at the Institute of Economic and Social and Political Studies of São Paulo, corroborates Marques Moreira's assessment by stating that “there is a symbolic battle ahead; as long as we don't have ethics, we won't win. ” According to her, the market is not the villain and the State is not the solution. The teacher recalls that, at the beginning of the crisis, only 22% of the Brazilian population believed that it could be affected by it. "But today the reality is different," she says. The professor also highlights the increase in the unemployed population in Brazil as another negative reflection of the crisis. “From December 2008 to January 2009, unemployment went from 6,8% to 8,2%. In six metropolitan areas of the IBGE, unemployment jumped from 1,6 million to 1,9 million. It is a large contingent removed from work, ”she says. Another concern raised during the ETCO advisors' meeting was the 3,6% drop in Brazilian GDP. "This is very significant, because in other countries, the GDP drop occurred gradually, but in Brazil, in a single quarter we fell a lot," said De Marchi. He stressed, however, that the international financial crisis caught Brazil practically tidy. "We have 200 billion reais of reserves, but the government is spending a lot," says De Marchi. In his assessment, worldwide, credit has dried up by 25%, and a second crisis is already expected in Eastern European countries. They owe $ 1 trillion, money lent by European countries.

For Leonardo Gadotti Filho, the Institute's senior adviser, there is another major concern, which is the fact that no government has gone through a crisis of this dimension, and therefore it is not known how it will react to the next events.

Celso Lafer, a former foreign minister and member of the ETCO Advisory Council, spoke about the difference between risk (which can be calculated) and uncertainty (a situation where you don't know what can happen). When there is a crisis of confidence, according to him, it is difficult to assess what lies ahead. “Economists make a distinction between risk and uncertainty. Risk involves calculation, provides some predictability and opens horizons for scenarios of possibilities that the unforeseen can bring. Uncertainty, on the other hand, does not include calculations, which is why it tends to encourage immobility, ”explains Lafer. "The crisis is a result of the lack of transparency that the new financial products have created." The former minister recalls the Italian philosopher and thinker Norberto Bobbio, for whom the problem of transparency is a matter of morality. "You don't know what you're dealing with, and that's one of the big challenges," said Lafer. According to him, another major discussion at the moment is the dichotomy between the financial and industrial systems. “It is important to note that Proer (Program to Encourage Restructuring and Strengthening the National Financial System) and the Fiscal Responsibility Law (Brazilian government provision to prevent mayors and governors from indebting cities and states more than they can collect) they gave our system credibility and currency stability, ”said the former minister.

In the opinion of Professor André Montoro, ETCO's chief executive, it is very easy to criticize the financial system. Without neglecting excesses and fraud, he said that "it was the great financial innovations that generated this long period of abundant, cheap credit, and leveraged the strong growth of recent years." For Montoro, credit is essential for the functioning of the economy. With the almost stagnation of credit, as of September 15, 2008, throughout the world we had a systemic crisis in the financial system, with a strong repercussion on the real side of the economy. "One aspect that concerns ETCO is the fact that the impact is differentiated between legal and illegal, as the underground economy does not need credit," says the executive president of ETCO. According to De Marchi, in the current situation, companies are making cash to pay their debts, because that is what will be privileged. “And this is because things were done unethically. The exacerbated leverage came about because executives who received performance bonuses ended up putting greed above security.

According to André Montoro, if there was a breach of confidence in the credit market, it is necessary to find some mechanism to restore that confidence. "The challenge is to find out what can restore credibility."
Marques Moreira agrees with Montoro in his argument about the momentum in the world economy given by financial innovations. "Because it lifted the Chinese and the Indians out of misery and generated enormous liquidity," he says. In the opinion of Hoche Pulcherio, senior adviser to ETCO, American banks are backed by the American government. "The crisis of confidence abroad is already better, now let's see how the crisis is here in Brazil." The entrepreneur Roberto Faldini reveals concern not only with financial greed, but also with political greed, mainly in 2010, the election year.  

When starting his analysis of the current financial crisis, ETCO adviser Everardo Maciel quotes the Athenian poet Agaton, a contemporary of Aristotle: “It is very likely that the unlikely will happen.” Maciel points out what has repercussions on the Brazilian economy. Concrete facts: drop in economic activity, unemployment. In his opinion, Brazil does not need to increase regulation of the financial system. But the government will have to be aware of the increase in tax evasion, as the businessman will choose not to pay tax to pay his supplier. This will generate, according to Maciel, a loss of collection efficiency at the federal level. There will be unemployment and an increase in informality. "The question is not the size of the crisis, it is" what am I going to do about it ", asks Maciel. For example, a sector that employs a lot is small and micro-enterprises. Measures could be created to mitigate the employment problem, ”he suggests. Maciel defends the use of creativity in the crisis. "For example, the government could establish that whoever employed a Bolsa Família beneficiary could deduct it from income tax," says Maciel.

The lawyer and member of the ETCO Advisory Board Aristides Junqueira raised an important fact in this scenario of financial crisis: the intervention of the Public Ministry of Labor, as in the case of the layoffs at Embraer. "The Ministry intervened in this, but without studying the genesis of the crisis," he says. “I am afraid that unenforceable lawsuits will be imposed. The financial system is a protected legal value. There is a risk of awkward solutions ”, says Junqueira.

* The Chairman of the Board of Directors, Victório De Marchi, and the directors Hoche Pulcherio, Leonardo Gadotti Filho and Luca Mantegazza, the president of the Advisory Board, Marcílio Marques Moreira, and the directors Aristides Alvarenga Junqueira, Celso Lafer, Carlos Ivan Simonsen Leal, Everardo de Almeida Maciel, Maria Tereza Sadek and Roberto Faldini, in addition to the head of the ETCO Fiscal Council, Jorge Luiz Oliveira, the executive president, André Franco Montoro Filho, and the executive director, Patricia Blanco