Lighting a candle for Brazil
For Otaviano Canuto, it is better to turn off the light bulb than to resort to
in court against surcharges imposed by rationing

TATIANA FÁVARO

It's the government's fault, but the solution doesn't depend on the government alone: ​​society will end up paying the price. The statement by professor Otaviano Canuto, from the Institute of Economics (IE) at Unicamp, is a way of saying that it is better to turn off the lamp and light a candle for the country than to go to court against the surcharges imposed on those who do not reach the reduction targets consumption established by the rationing plan, presented last May by the Minister of the Civil House and president of the Energy Crisis Management Chamber (CGCE), Pedro Parente.

It’s not about saying “amen”. But it is important to know, as Canuto points out, that legal victories against the government will not mean energy production. “We need to cut back on fat and not meat. The degree of liposuction must be sufficient to avoid disordered blackouts”, comments the economist. Because even experts are struggling to clearly see the intensity of the impacts of rationing on the Brazilian economy.

They only manage to find, by groping in the pitch black, clues about the direction of these impacts. Which is not encouraging at all. The fall is certain, on all fronts of the economy. Gross Domestic Product (GDP) growth, previously forecast for at least 4,5% this year, should not exceed 3%, optimistically. “The reduction in ICMS (Tax on the Circulation of Goods and Services) collection will be as strong as the degree of recession, the greater the need to cut meat to save energy consumption. If it is possible to reduce consumption only in fat, the drop in GDP growth will be smaller and, equally, the impact on ICMS. Unemployment also fits into this logic”, explains Canuto.
Although the immediate impacts of the energy crisis draw more attention, mainly because its effects directly affect the consumer's pocket, it is necessary to think about long-term measures, with the aim of recovering the capacity for public investments and the minimum supply of private investments in essential infrastructure sectors.

Counting on the possibility of complementary private resources means, above all, that the government must quickly find solutions to make room for investors. Definitively resolving the exchange rate risk problem and establishing rules for the wholesale energy market are some alternatives. “It is necessary to resume energy planning”, insists Otaviano Canuto. “The government needs to project the need for use, try new energy sources, take advantage of the possibility of supply and provide spaces to receive technical and university support. Place people who understand energy in these positions, instead of allocating positions in sectors as essential as infrastructure using strictly political criteria”, adds the professor.
The key thing now, according to the economist, is to review the concept of public spending and the format of Brazil's agreement with the International Monetary Fund. The current format for transactions with the IMF identifies any investment made by the government in the infrastructure sector as an expense – in energy generation, for example. It is synonymous with the worsening of the public deficit.

Dangerous – A detail that cannot be forgotten either by President Fernando Henrique Cardoso and his leadership, nor by CGCE technicians, is that one of the conditions for the injection of financial resources into a country's economy is credibility. And, at this point, it is necessary to admit that Brazil is not doing very well.

Professor Canuto highlights: “We were already experiencing a situation of external vulnerability. It was clear to some analysts that the pressure for the devaluation of the real was not just coming from the crisis in Argentina, but had to do with the perception of a trend towards a lack of dollars in the Brazilian market. The energy crisis only worsened this situation of vulnerability, because the first result was a retraction in capital inflow, a slowdown”, he declares. “I would say that we are in a precarious situation. For now, the Central Bank is doing what it can: it has already launched public debt securities indexed to the dollar, for example. And it depends, in part, on the government's ability to convince the market that the economy will remain under control, since its credibility has become a fragile point. Even when it comes to other areas”, he adds.

Among the direct causes of the energy crisis, the low level of investment in recent years stands out, without a doubt. Canuto recalls that the precariousness of the Brazilian fiscal situation, the absence of an adequate regulatory framework for opening up to private capital and the dismantling of an energy planning structure were the main factors that led to this lack of investment. “The alert had already been made. And the government excelled, because the approach was immediate and of negotiating parliamentary support with Congress. You can do this with some segments, but with others you need to maintain a command of strong technical content. And in energy, as in other infrastructure sectors, such an attitude is required. It was a mistake that, I hope, future governments will not repeat”, highlights the economist.