Lawmakers in Brazil have voted to grant autonomy to the central bank in a move aimed at improving the country’s reputation among international investors by removing the risk of political interference in monetary policy.
The legislation was approved by federal deputies in the lower house of Congress on Wednesday, after an almost year-long delay following the coronavirus crisis and local elections.
Under the law, the bank’s chief will still be nominated by the executive and subject to Senate confirmation. But they will be legally protected from being fired by the government over disagreements on monetary policy.
As a member of a collegiate board of eight directors, the head of the bank will be entitled to a four-year term that can be renewed once, though the mandate will expire halfway through the presidential term.
The change will give a freer reign to the central bank’s current president, US-educated Roberto Campos Neto, who took the job in 2019. On the former trader’s watch, the bank has slashed the benchmark Selic interest rate to a historic low of 2 per cent — significant in a country with a legacy of high inflation.
The legislation provides a boost to President Jair Bolsonaro’s economic reform agenda, which has largely floundered since the passage of an important pensions savings bill in 2019.
Under Paulo Guedes, the finance minister, the rightwing administration has attempted to push through sweeping structural reforms to liberalise Latin America’s largest economy, which has struggled since a deep recession five years ago.
The government’s plans received a shot in the arm this month when two political allies claimed the top positions in both houses of Congress.
Arthur Lira, the new speaker of the lower house, wrote on Twitter: “The approval of the central bank’s independence represents precisely the shielding of the institution from any political interference, a historic achievement of the country, long cherished and finally achieved now”.
The bill will now go to the president for approval. But with a narrow window before campaigning for presidential polls begins next year, the government’s other legislative priorities are likely to be more complex and contested. These include privatisation of state-owned enterprises and reform of the country’s labyrinthine tax system.
Central bank independence has been debated in Brazil for three decades. While in practice the institution is already considered independent, critics alleged political pressure was applied under former leftwing president Dilma Rousseff to lower interest rates in a bid to revive the flagging economy.
Economists warned that a bigger concern among foreign investors was how the government manages its borrowing, which at more than 90 per cent of gross domestic product is the highest of any big developing economy other than China.
“It is an important step to put black and white in terms of legislation, but in practical terms, nothing will change if we don’t have a sustainability project on the fiscal policy side,” said Carlos Braga, professor of economics at the Dom Cabral Foundation.
“If we are not careful with the issue of the public deficit and debt in 2021 and 2022, we will continue to have a series of doubts about the future of the Brazilian economy.”
The central bank bill had faced opposition from politicians, particularly those on the left, who argued for the institution’s mandate to encompass economic growth and employment targets as well as inflation.
“In the middle of the pandemic, the priority should be to guarantee more dignity for Brazilians, with emergency aid and vaccines for all,” said Alessandro Molon, a deputy with the Brazilian Socialist party.
Additional reporting by Carolina Pulice