What was already very poorly designed is only getting worse. Recent government and congressional onslaughts over fuel prices have managed to cause even more astonishment. The idea of changing the governance rules of state-owned companies to allow them to change the prices of gasoline and diesel should be expressly barred by the Ministries of Economy and Mines and Energy.
The little institutionality that has been achieved in the oil market runs the risk of being undone and, what is worse, even being welcomed by a possible future PT government.
It is not by chance that the exchange rate has been pressured again and is close to R$5.2 in recent days, which leads us to the idea that there is a very large mismatch between what the fundamentals suggest for the exchange rate and the that political and fiscal risks actually signal for the rate.
In fact, econometric models show that the equilibrium exchange rate, the one consistent with the economy’s interest rate fundamentals, for example, should be at R$ 3.8, far from almost R$ 5.2 today.
The problem is such that the difference between the equilibrium exchange rate and the market exchange rate is similar to what was seen during the Dilma administration.
Behind this, there is the huge fiscal risk created at that moment around the continuity of her government, a risk that remains present when you see a government that should have more fiscal responsibility playing against the desired fiscal balance for the coming years.
A good part of this difference in the exchange rate could decrease if the current and the next government were committed to an effective fiscal balance, which does not seem to be the case.
In fact, the expectation of inflation starts to rise more for 2023 due to the risks of reduction of the exemptions made this year. The IPCA is already starting to be seen in the range of 5% to 6% for next year, increasingly distant from the inflation target. And, with that, the Selic will have to rise further, to at least 13.75%, and next year’s growth is increasingly compromised, with projections that indicate recession becoming more frequent.
At this point, the government’s desperation in trying to deliver some result to the population has led to these aggressive attempts, as in the question of dismantling the governance of state-owned companies.
The most recent idea of a voucher for truck drivers enters the electoral bill, as it is not only they who suffer from the rise in fuel obviously, but they are the most vocal against the government. In any case, a more general voucher could be a solution if the ICMS changes had not been made, as discussed here in previous columns.
The consequences of what has been done should affect the government itself, as they will not change inflation, on the contrary, they tend to worsen it. Every time the government launches a solution for fuel, the exchange rate depreciates more, the real loses more value and inflation can rise even more.
Politically, the government has been working hard to make life easier for the opposition in this year’s elections, while making ours difficult with the cursed heritage being built this year. Positive measures such as the privatization of Eletrobras are useless if much of the macro balance could be lost because of what has been done.
As we have been talking about in this space, 2023 will be a particularly difficult year with political polarization still in place and an economic policy without positive signs, as we saw in the recently launched PT government proposal.
Source: CNN Brasil
