Henrique Meirelles, the president of Brazil’s Central Bank, says the present crisis in Greece is similar to the problems that emerging nations, like Brazil, had in the past. Like Greece today, in the past Brazil had to get help from the International Monetary Fund, pointed out Meirelles.
“There’s no doubt that the public debt crises today, such as the Greek problem, is similar to what happened to emerging nations in the past. There was a high level of liquidity followed by a surge in public debt and then a liquidity squeeze with the result that it became very hard to finance the debt.”
Meirelles says that there are interesting factors in the Greek crisis. “They belong to the European Union and share a common currency. But the EU does not have a monetary or exchange rate policy.”
Meirelles declared that Brazil was well prepared to face the 2008 crisis and that the cost to the country of overcoming the Great Recession was much less than in many other G-20 nations even though it was a dangerous situation.
“In 2008, we had a crisis characterized by a lot of unknowns. That was what paralyzed the financial system,” declared Meirelles.
Economic Debate
In the 1940s there was an intense debate between two of Brazil’s most important economic thinkers. It was a dispute that remained very much alive for almost seven decades. But, like many other things, The Great Recession has done more than just move the deck chairs around – this time a profound change has occurred and it looks like there is a winner.
On one side of the debate was professor Eugenio Gudin (1886-1986) and on the other, a captain of industry, Roberto Simonsen (1889-1948). Gudin was a monetarist and conservative. He was an engineer who treated economic problems as technical challenges and believed that it was essential to keep costs under control.
Simonsen was what is known in Brazil as a “developmentalist” with heterodox economic ideas, which boil down to a belief in a big role for the government in economic growth, especially in emerging nations – if they are to ever emerge.
Denise Gentil, an economist at the Applied Economic Policy Institute (which has just published two books analyzing the ideas of Gudin and Simonsen), says that with the Great Recession of 2008, the ideas of Gudin have been overwhelmed by the facts and that the ideas of Simonsen are much more relevant.
“Gudin would have been astonished by what Central Banks around the world, including Brazil’s, did during the crisis,” she says. “They did more or less everything conservative monetarists think Central Banks should not do – expanded credit, reduced mandatory reserves and sold international reserves. In short, promoted a huge intervention in the economy that allowed Brazil to escape most of the consequences of the crisis.”
The lesson learned is that in times of great crisis, the economy cannot be left at the mercy of market forces, declared Gentil. For Brazilians specifically, the lesson was that the solution was radically different from what Gudin said and much more in line with the ideas of Simonsen, who argued that in order for Brazil to become developed (and industrialized) state intervention was essential.
He called for the state to act as a direct producer, creating both demand and consumption. In the 1940s Brazil was an agrarian state, an exporter of primary goods, needing a boost to become industrialized, a boost that only the government could give the country, said Simonsen.
The fact is that big government and state intervention, including huge outlays (via BNDES, for example) are fashionable in Brazil today and definitely considered the way to go.