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A Government Without Direction, a Congress Without Shame, by Aldo Fornazieri
The year 2024 ends with a political and economic environment that is quite deteriorated. In the political sphere, after the center-right’s victory in the municipal elections, the government seems to have lost the ability to guide the country’s politics and coordinate the expectations of economic agents. In 2023, although the government already presented problems of political direction and communication, it was still able to coordinate expectations in the economy with the proposal of the fiscal framework and tax reform. However, it paid little attention to the growing risk of fiscal risk. This was a fatal mistake.
With a public debt higher than most emerging economies, and an unfavorable external scenario due to the dollar’s appreciation, the government allowed the fiscal risk cord to stretch until the end of the year. The moment to make a strong adjustment was at the beginning. The political environment was more favorable, and there would have been time to reap the benefits of the adjustment under the current mandate.
By proposing an adjustment at the end of 2024, the government proceeded incorrectly, violating elementary rules of good governance. Everyone knows, since long ago, but more clearly since Machiavelli, that when one must adopt harsh measures that impose sacrifices on the governed, they must be adopted all at once and in a more forceful manner, so that they do not need to be repeated.
Since ancient times, analogies have been made between medicine and politics. When a doctor prescribes a bitter medicine to a patient, he must explain clearly the importance of the medicine to prevent the deterioration of the disease and the possible benefits it may bring in the future. The government did not do this with the fiscal package. It was not clear in explaining the need for the adjustment, what sacrifices it required, what evils it combated, and what benefits it could bring in the future. In other words: a disastrous communication.
Furthermore, the government administered a weak, insufficient, and ineffective medicine, unable to contain the crisis of fiscal risk. It did not coordinate the expectations of economic agents, allowing them to deteriorate and persisting in the perception of fiscal risk. The result was the surge in the dollar, which was fueled by a battalion of speculators.
The surge in the dollar feeds inflation, which feeds interest rates, and high interest rates increase the cost of public debt services. In the end, the few fiscal gains that the package may bring are practically canceled out by the damaging effects of a weak and poorly announced adjustment.
The disastrous communication did not stop there. Just as it is known that unpopular measures must be adopted all at once and in a more forceful manner, it is also known that measures that benefit the people (the good) must be adopted gradually and continuously, so that they can always be savored. They cannot be adopted together with unpopular measures, as they would be canceled out. By announcing the increase in the income tax exemption, the government canceled out the possible positive effects (understanding) that the announcement of the package could have brought and nullified the benefits that could be obtained with the announcement of the increase in the income tax exemption, which will only be implemented in 2026, when the announcement could have had a better impact. In short: everything was wrong.
In the process of defining the package and its announcement, President Lula, along with some ministers and some PT leaders, took responsibility for undermining the confidence and credibility of the Minister of Finance, Fernando Haddad. Some ministers threatened to resign if their ministries were affected by cuts. They would have done a good thing for Brazil.
Lula and these representatives issued a series of statements that torpedoed the economic team and the government’s own commitment to fiscal responsibility. Once again, they fed the paradox of pity and cruelty: they presented themselves as defenders of the good, but their statements harmed the country and, above all, those who most need economic stability and low inflation: the poorest segments of society.
The same paradox is observed in the central issue of public spending. Everyone knows that Brazil needs a strong fiscal adjustment that disentangles social benefits from the minimum wage, improves the efficiency of spending in health and education, creates new mechanisms for its financing, and is able to equate the problem of interest rates by reducing spending on public debt services.
Some government sectors were attacking the wrong targets. They turned the Central Bank and the market into central enemies. Each attack caused the dollar to rise and economic variables to deteriorate. The rhetoric stimulated speculative attacks. What is the sense of choosing political rhetoric that harms the government itself? It is irrational, it is the exhaustion of mistaken convictions and the detriment of the ethics of responsibility. The government fell into a vacuum when it became clear that Galípolo and other directors appointed by Lula defended the same positions as Campos Neto.
The government is resentful of a political command with the ability to give direction and sense to its actions, guiding the country and coordinating the expectations of economic agents. The errors of communication, in part, result from the absence of political direction. All this is revealing a government without a face, without a mark, without an identity.
On the other hand, the government is a victim and, at the same time, a partner of a Congress that dedicates itself to political and budgetary agiotage on a large scale. It is a Congress without shame, which refuses to cut its own benefits, maintains loopholes for indecorous high salaries in certain sectors of the public service, and maintains the privileges of the aristocracy of politicians, bureaucrats, and military officers who feed on the patrimonialist hunger for public money. The same Congress that does not have a commitment to controlling expenses, which practices corruption through secret amendments that maintain the privileges of subsidies, degrading efficiency and equal conditions of competition in markets.
The episode of the camouflaged amendments is a shocking example of how Congress is disposed to act against the Constitution and against the constitutional principles of public administration. It is disheartening that left-wing parliamentarians have not only omitted, but contributed to patronizing this scandal that, besides violating the Constitution, violates democracy and the republic.
The Brazilian economy is a prisoner of an aristocracy of politicians, bureaucrats, military officers, and entrepreneurs who seize a significant part of the public budget through institutional and legal control schemes with the aim of preventing transparent regulation and the adoption of efficiency mechanisms. This aristocracy blocks economic modernization and innovation.
This conspiracy of delay, in which the main parties are involved, has erected a monument to carelessness, pretence, and inefficiency in public spending, which has sown a vast field of waste, moral degradation of the country, distrust in politics, and erosion of institutions. This degraded environment stimulates anti-politics, and this is the grass that feeds authoritarianism, fascism, and hate politics.
Aldo Fornazieri – Professor at the School of Sociology and Politics, author of Liderança e Poder
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