Chronicle of a Difficult Time

In the United States and Europe, what do we see? A flood of public money through the central banks to save the financial system without penalty against those responsible.

Sometimes I want to be more of a reporter than a columnist. I will explain: One would expect a columnist to argue in a logical and concentrated manner about any subject. However, the reporter can digress. I am tired of arguing, and have more of a desire to ramble without any pretensions than to have to demonstrate the logic of my arguments.

I will begin with a confession. Thursday, Sept. 1, after a pleasant lunch with good friends who still take it upon themselves to continue celebrating my now 80 years, I arrived at the Institute at 5:30 p.m. I greeted an old collaborator and friend, who I had not seen in a long time (actually an army general, to be exact) and I began to show him the exhibition about Brazil before and after the “Plan Real,” which Acervo del Instituto FHC prepared to serve future generations, and who knows, to awaken the interests of a researcher. At 7 p.m., after finishing with the visit to the exhibition, I received a message from one of my advisers: do not forget the article for the first Sunday of September.

More serious even: Friday, at 7 a.m., I had to leave the house for the airport to go to Montevideo because of an invitation from my friend, the former president of Uruguay, Julio Sanguinetti (1985-1990). What should I do?

I had in mind two themes for this article. Some reflections about the economic crisis of the wealthy countries and our experience in dealing with the issue, or something more burning, the limits of the “cleaning” brought about by the President of Brazil, Dilma Rousseff, and my comments in this regard.

Serious issues. I confess, I lacked the energy to discuss these topics in depth in two hours — that was the time I had left — although I didn’t lack an appetite to share some opinions like a reporter (without wanting to offend the vigor of the true reporters).

Let’s go then. First, the financial crisis of the wealthy countries and our “legacy,” the pretentious word, and so misleading that it was popular: our “cursed inheritance.”

In the case of the wealthy countries, it is indisputable that what caused the crisis was more the excess of the financial system and the blind belief in market self-corrections than government spending and the fiscal crisis, although these also exist.

In the case of Brazil during the ’90s, it was the difficulties in the external accounts and, above all, the speculation against the domestic currency, the “contagion,” also complicated by fiscal fragility. There, as here, for the same reasons or for no apparent reason, risk rating agencies played an important role in raising doubts about liquidity and solvency.

But this is how far the similarities go. We didn’t have the possibility of chopping and transforming the mortgages into derivatives given that the real estate loans were small, nor did we push the central bank to a financial disaster.

In our case there was also a certain “socialization of losses,” meaning the Treasury (and all of the taxpayers) finished paying for part of the mistakes of the bankers and speculators. But for a small proportion, the bulk was paid by audacious bankers themselves. Their assets were unavailable and they lost their banks. This was the Stimulus Program for the Restructuring and Strengthening of the National Financial System (PROER).

State-owned banks, where governors borrowed money they didn’t pay back, were privatized or closed. In those cases there was also some increase in federal debt, justifiable to prevent the possibility of future excesses. That was the Incentive Program for the Reduction of State Public Sector in Banking Activity (PROES).

In the United States and Europe, what do we see? A flood of public money through central banks to save the financial system without penalty against those responsible. And, on top of that, drastic budget cuts without raising taxes, making the less fortunate pay for the mistakes of the most wealthy! And worse still, all of this without the economy regaining its momentum.

There is tumult in Europe to see if a country will pay for the loans that the banks made to the countries now facing difficulties, or if there would be a Central Bank of Europe — that is, everyone would pay. Always, even more than that, there are drastic cuts to the budget to put in order the fiscal accounts. The result: few possibilities of growth in the upcoming years. Is that enough to understand?

From here we scream against deregulation (I came to support the Tobin tax, a tax on international financial transactions — that almost all of the economists condemned — to create a fund of solvency for countries in debt), they come to us with the same recipe: tax restrictions and nothing else, except for another loan from the International Monetary Fund when the situation became very desperate. He who lives by the sword dies by the sword.

The confusion now is “of them” and “by them,” and they won’t exist anymore without us. One has to learn from other people’s mistakes because the recession will eventually catch up to us. When this happens, the dreams of the Group of 20 (industrialized and emerging countries) that act to regulate the financial market will die in the homestretch.

We didn’t learn our lesson. In addition to the vaunted fiscal restraints, we follow the rules of Basilea, that is, our central bank put an end to speculation and irresponsibility in the financial system since the time of PROER and PROES. And we don’t neglect to have a National Bank of Economic and Social Development, which is active in programs that transfer income to the poor and implement the real minimum wage increase to date since 1994.

Instead, we should learn from the rich countries that do not play around with public corruption. In Germany, the great consolidator of the European Union, Helmut Kohl, paid a heavy price of losing the vote in 1998 for refusing to say who helped him in the election. And recently a senior minister was forced to resign, accused of plagiarism.

So, now that they have started talking about cleaning up, I think we should support the initiatives of Brazil in this manner (starting with a Parliamentary Commission of Inquiry, the acts of the President, and encouraging her to reach even further), without letting any government or party, even the opposition, take hold of the banner of moralizing. That would be seen then as a political maneuver and would lose support in society that is tired of such impunity.

Hence, to think as some think, that we are willing to support governments or look good in a photo, is ignorance of the real motives or folly of those who do not see ahead. The forces of corruption are more entrenched in power than they seem. Without tactics, persistence and vision, it will be difficult to contain them.