By Marcela Ayres
BRASILIA (Multibagger) - Brazil's Senate Constitution and Justice Committee have decided to postpone the voting on a constitutional amendment proposal that would grant financial autonomy to the central bank. This delay is to allow time for the drafting of a new consensus text, as suggested by Senator Jaques Wagner, the government leader in the Upper House.
During a meeting with Finance Minister Fernando Haddad, Wagner stated that the government supports granting financial autonomy to the monetary authority. However, they do not endorse the original draft's proposal to turn the institution into a public company.
In 2021, Brazil's Congress granted operational autonomy to the central bank, separating the central bank governor's term from that of the country's president. Financial autonomy would further enhance the bank's independence from the executive branch.
President Luiz Inacio Lula da Silva, who took office in January 2023, has expressed concerns about working with a monetary policy chief appointed by his predecessor, Jair Bolsonaro. Governor Roberto Campos Neto has advocated for financial autonomy, citing the need for the central bank to have its own budget to enhance staffing and address technological challenges.
Lula's administration has opposed the proposal, citing concerns about jeopardizing compliance with fiscal rules. The main worry outlined in a document distributed to senators is the projected primary expenditure of 125 billion reais ($23.06 billion) on the federal government next year if the amendment is passed.
Currently, any negative outcomes for the central bank in 2025 are covered by the Treasury as a financial expense, without impacting the government's fiscal targets. However, this would change if the central bank were to be transformed into a public corporation, as proposed. According to the government, dividends and capitalizations of companies, including financial ones, are considered primary flows under fiscal rules.
The central bank's negative results mainly stem from its foreign exchange operations, which are influenced by swap contracts and fluctuations in Brazil's international reserves. ($1 = 5.4200 reais)
Analysis: The proposal for Brazil's central bank to gain financial autonomy is a crucial step in enhancing its independence and effectiveness in monetary policy decisions. However, the debate around turning the institution into a public company has raised concerns about potential fiscal implications. If the amendment is passed, it could impact the government's fiscal targets and require significant budget allocations. Investors and individuals should closely monitor the developments surrounding this proposal, as it could have implications for Brazil's economic stability and financial markets.