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Maílson da Nóbrega

Maílson da Nóbrega: The quiet economist

Former Minister of Finance launches autobiography that describes what goes on in the corridors of power in Brazilian politics

Mailson-da-Nobrega_EDUARDO-CESAR“We created an erroneous notion in Brazil that the country’s problems are solved by economists. Economists are those fellows who have extensive analytical skills, understand macroeconomics, and so on and so forth, who sit around a table and design a program. The bigger responsibility of dealing directly with a society’s problems, of bringing it up to date, of burying the past, etc. is not the task of economists. It is the task of politicians”, states economist Maílson da Nóbrega, former Minister of Finance from 1988 to 1990, during the José Sarney Government (1985-1990). This comment carries a lot of weight in view of the national tendency to grant too much power to the authorities responsible for economic policies. Unlike other “magicians” in economics, Malison’s career has always been guided by his “technical” skills, as can be perceived from reading his recently launched autobiography, Além do feijão com arroz [Beyond rice and beans] (published by Civilização Brasileira). The book portrays the journey of a self-made man, which began in the tiny town of Cruz do Espírito Santo, in the Zona da Mata region of the State of Paraiba. At the age of 10, Mailson was already working as a cashew nut sheller and street vendor.

His name is as unique as his life story, although it is not unusual in that region. The first syllable, Ma, comes from Maria José, his mother’s name. Ilson comes from his father’s name, Wilson, who was a tailor. His career path followed the steps of what at the time was a highly respected career: he was an employee of the state-owned bank Bank of Brazil (BB). His professional career took him to Brasília, where he was appointed general secretary of the Ministry of Finance, and, later, Minister of Finance. He was one of the people responsible for modernizing public finances and, when he was the Minister of Finance, to extinguish the famous “activated account” of the BB, the government’s parallel budget that was never sent to Congress for approval.

These technocratic roots, a result of his work on economic policies during the military governments, remained during his term in public office and were always underscored by a strict and controlled view of how to deal with the economy. Mailson went up the bureaucratic career ladder, modestly and continuously, unlike many of his colleagues who had held the same position and who were mostly academics or successful businesspersons. For many years, Maílson was the model advisor to ministers, many of whom did not hold such positions for very long. When he was appointed Minister of Finance, Brazil was going through a highly complex situation, with sky-high inflation, which had gone up by an astonishing 416% in 1987. Brazil’s public deficit was enormous and the country had no access to international credit, a consequence of the unilateral moratorium on foreign debt decreed by Sarney.

In spite of expectations that radical changes would be implemented, Mailson decided to keep to the basics, and chose not to establish a price and salary freeze. He ignored the anger of businessman Roberto Marinho, owner of the powerful Rede Globo TV network, and, due to a prerogative of the position he held at the time, he implemented the Plano Verão, an economic stability plan (which, like other plans of this kind, was a failure). He ended his term in office having to deal with the resignation of the President of the Republic. He turned his office over to Zélia Cardoso de Mello, only to find out, on the day following the implementation of the Plano Collor, an economic stability plan, that he had no money to finance his future plan to set up a consulting firm, similar to the Tendências consulting firm, which he heads nowadays in São Paulo. From the height of the wisdom of someone who had already unsuccessfully battled with the “inflation dragon”, Maílson is optimistic about the future of Brazil. He says that nowadays “Brazil no longer tolerates inflation and the irresponsible actions of an incompetent government”. Even though he defines himself as a “practical economist”, Maílson was a visiting professor at the School of Economics and Business Administration at the University of São Paulo (FEA-USP), where he conducted the research work that resulted in the book O futuro chegou [The future has arrived]. Below are excerpts from his interview with Pesquisa FAPESP.

When reading your book, one can trace a parallel line between your life story and that of the country, in the quest for modernization and a return to democracy. How do you view Brazil’s trajectory in comparison to yours?
I think that, over all these years, Brazil has overcome many of its obstacles, among which were restrictions to development and pessimism about the future. This was an extraordinary feat, because Brazil, a nation that had barely managed to export coffee and sugar, has become a complex society, with a broad industrial base – even though it still lacks efficiency in some areas – and has built up a solid democracy. This results from the fact that we built the pillars to support the building of our future. The first pillar is democracy, which has become consolidated as a value for our society, even though some people have not realized this yet. I think it will be very difficult to find any person in Brazil who would have the courage to defend the return of the military regime. Brazil is a young democracy, with many defects, and our challenge is to strengthen it through institutional reforms that will improve our voting system, increase the decision-making powers of Congress, and broaden the participation of the people in the definition of the country’s destiny; in short, we must become a democracy that resembles that of more mature societies. Stability is the other pillar. One of the major post-war transformations of Brazilian society was the perception that inflation is something totally undesirable. We have become intolerant of inflation. There was a time in which such intolerance did not exist. I remember learning that inflation had a role to play in the development process. I recall reading an interview with Celso Furtado – I was already an economist at that time – where he stated that 15% inflation was not a bad thing; in fact, he stated, it was a way of financing the public sector in an inexpensive manner. However, education is the most important pillar. Until as late as the mid 1980’s, the general perception was that education was a sub-product of development: it was enough for the State to protect industry by granting subsidies and, tax incentives, provide infra structure services and subsidized credit facilities, and so on, and development would generate the proper environment for education. I think we have been able to invert this logic and there is a growing awareness that education is the basis – and not the consequence – of development. If you look at what has happened since Brazil returned to democracy – especially during the Fernando Henrique and Lula governments, you will see that education has progressed significantly. It has not progressed as much as we would have liked, but the illiteracy rate in our country has dropped. Not because of literacy programs, but, as an economist friend of mine said cruelly but correctly, the illiterate part of the population is declining because it is dying out. This population reaches adulthood, ages and dies, and is not being replaced by younger generations of illiterate people. So the tendency in Brazil is that formal illiteracy is declining. Of course we have to deal with some taboos, among which is the idea that university education should be universal and free for all. People who can afford to pay for a university education shouldn’t be allowed to study for free. I can’t get over the fact that the son of a millionaire from São Paulo can study for free at the Polytechnic School of the University of São Paulo. The issue is not that the tuition will finance college studies – the issue is social justice. The lower income segment of the population should not be obliged to subsidize the university education of the rich who go to the top universities. So, thanks to these three pillars, we have been able to cross the Rubicon – there is no going back. Brazil has built institutions that can prevent any attempt at going back to the former status quo in terms of how the Brazilian economy was run. There might be some attempts, but the institutions function in the sense of reverting and re-establishing the trajectory of stability. Even if we have incompetent governments in the future – as we most certainly will – this does not mean that this process will be interrupted – it will be a pause that will not derail the country from its trajectory. Within the next two decades, Brazil will  be one of the world’s fifth largest economies. The country is more open now, it is more closely integrated with the global flow of trade and finance. We are evaluated, kept track of, not only by ourselves, but also by international specialists. And these mechanisms function in the sense of penalizing possible irresponsible actions in the management of the economy.

EDUARDO CESARSo you don’t believe that there will be any problems in the new government?
Let me give you a real example: let’s say that the newly-elected president decides that she is against a measure implemented by the Central Bank and, in view of the fact that the Central Bank is not formally independent yet, she can decide on the interest rate that she feels is correct to maintain price stability. By making such a decision, she will give off signs of irresponsibility and this, in turn, will turn on various warning lights that will create another environment. Confidence in the country will drop drastically, the foreigners who are investing here because they believe in our future will flee, because they are cowards. They know how to “price” risk but they do not have the power to impose anything on the government, and the “pricing” of risk means capital flight, which in turn produces the swift devaluation of the local currency, a brutal downturn of the stock exchange. The mechanisms of the futures market signal that the business environment will get worse, and all of this is in the media, in the press, newspapers, TV, radio, and reverberates in successive waves, thereby creating an environment of insecurity for voters. Voters realize that inflation can come back, that they can lose their jobs, and so they change their opinion in relation to the government. As a result, the government’s popularity decreases, which is akin to saying that the political legitimacy of the president of the Republic and of his government, which implies the ability of networking, of leading the country, becomes significantly affected. And, as democracy is consolidated, this is equivalent to political suicide, because the popularity of the president drops dramatically and this opens up room for the rise of another politician. Democracy provides armor against irresponsibility. And in this aspect, Brazil is growing farther away from Latin American populism. That is, the presidents of the Republic have the power to do the wrong thing, of being irresponsible, but they will be stopped by the institutions. Brazil is a very successful country because, even though Europe began to take the steps towards prosperity at the end of the nineteenth century, we started this process later. We are skipping some of the stages in the process and perhaps it will only take us three generations to resemble today’s developed nations in terms of well-being and democracy.

What is it like to follow the orders of someone who is not an economist?
I think it’s a mistake to think that Brazil needs a manager as the President of the Republic. I followed the presidential campaign and it became evident that candidates Dilma and Serra have management skills. The president of the Republic does not have to be an expert on the economy. In fact, not even the Minister of Finance has to be such an expert. The fact that Brazilian governments have appointed economists as Ministers of Finance is a habit that remained from the military regime. From 1964 onwards, very few Ministers of Finance were not economists. It is interesting to note that the Minister of Finance who had the ability to coordinate a group of people, ideas and actions to end the enormous harm caused by inflation was none other than Fernando Henrique Cardoso, who is a sociologist.

What kind of relationship does the minister of finance have with politicians, and with Congress’ Finance Ministers usually complain that economic stability plans fail because of the politicians.
It is a myth that economic stability plans prior to the Real failed because of relationship-related difficulties with politicians. I am absolutely convinced nowadays that none of the stability plans implemented prior to the Real had any chance of being successful.  None of them. The probability of the Plano Cruzado, the most promising of such economic stability plans, being successful was close to zero. The reason was very simple: the implementation of a price freeze within an environment of sky-high inflation rates, as was the case of Brazil at that time, when inflation rates came to 15%, 20% a month – that was the context in which the Plano Cruzado was implemented. Such a situation drives intense transformation. The first transformation is the interruption of the corrosion that inflation provokes on salaries. The second transformation is the creation of an environment in which people are confident that inflation has been eliminated, and that economic calculations are possible. In this scenario, the financial system is more willing to offer credit, because it is more confident about the stability of the rules, about the income-related stability of its clients. All of this produces a context that is combined with the Brazilian consumer’s intense hunger for consumption, on account of unmet needs. This, in turn, leads to an explosion of consumption. This consumption explosion is frustrated because of inadequate supply. Demand goes up in the elevator, while supply goes down the stairs. As a result, goods vanish from store shelves. Why was the Plano Real successful? Because this gap between supply and demand was non-existent: demand went up in the elevator, and so did supply, which was backed by imports.

Mailson-da-Nobrega_livroEduardo CesarWere basic economics something new in a country that tends to focus on “grandiose” ideas?
The idea of basic economics came up accidentally. I held my first staff meeting before taking office and we discussed the matter. “We need to dismantle the idea that we’re going to come up with a plan tomorrow, that we’re going to freeze prices, salaries”. We knew that we would not decree a price freeze, but first we had to do away with this expectation because people had started to take preventive measures and this could lead to price increases, hoarding of products, etc. We did not have the illusion that we would implement major transformations. This conversation led to the rise of the “basic economics” idea; that is, the idea that we would stick to the basics. I wanted to show people that I came from a bureaucratic background and bureaucrats do not like to take big risks. In my first interview after I had taken office, a journalist asked me: “Minister, what is your policy going to be like?” I answered: “We’re going to stick to the basics”, under the mistaken idea that the interview had already ended. On the next day, the front-page headline of the O Estado de S. Paulo newspaper blared: “Minister announces a back-to-basics policy”. We got worried: “Listen, what do you think people will say? This gang of bureaucrats has no imagination whatsoever. Aren’t they prepared to face challenges?”. And then I got some telephone calls: “How clever! Who advised you?”.

You were interviewed by journalist Roberto Marinho before taking office as minister; later on, he tried to remove you from office. What was the story?
People like Roberto Marinho existed in other countries, even in countries with a solid democracy, such as the United States: Citizen Kane, right? I didn’t want this confrontation, but his attitude was a sign that Brazil had changed. In other words, Roberto Marinho – a prominent business leader to whom our country owes a lot – vested himself with enormous power and exerted it intensely. All of Brazil’s presidents used to go to his birthday party – including Lula. He got upset the first time we had a meeting because, I confess – I was very inept. Marinho had a project that entailed the exporting of pre-fabricated houses. The government had offered the benefit of exchanging foreign debt for exports. However, we interrupted this program after it had already been set up. Roberto Marinho must have thought to himself: “I was induced to invest time and money in this project and now the Minister of Finance wants to change the rules of the game”. My impression is that Marinho mistakenly believed that he could change everything again because he had direct access to the President’s Office and this enabled him to schedule a lunch with President Sarney, who invited me to attend the lunch. At the end of the meal, I realized that Marinho was trying to twist the president’s arm to re-establish the program. My ineptness was to state: “Mr. Marinho, this program is not interesting for our country”. He felt offended and answered: “Minister, do you think I am proposing something which is not good for the country?”. And that’s when this feeling of animosity was aroused. He told me that I was ungrateful because he had been responsible for my appointment as minister; he had suggested to the president that I be appointed. Our relationship soured from that moment onwards. However,  before this episode – I had been in office for a couple of weeks – Marinho invited me for lunch at his office in Rio de Janeiro’s Jardim Botânico [Botanical Gardens] neighborhood. Before I even had a chance to speak, he said: “I recommended Antônio Carlos Magalhães and Leônidas Pires for ministerial posts; they are my nominees”. And I thought to myself: “This is real power!”. Either he was showing off or he was telling me: “You’re the third one”. Other factors helped sour this relationship – as exemplified by the action of a regional director of the Federal Income Tax Department in Rio de Janeiro. Roberto Marinho saw himself as the country’s top benefactor and refused to be monitored. He thought that he was so good to Brazil that monitoring him was an offense. The Brazilian TV broadcasting industry had been equipped with cameras, spots, editing equipment and everything else mostly through irregular imports. Roberto probably feared being searched by tax authorities – I really don’t know if that’s the reason – looking for equipment without the proper invoice, equipment that had been imported irregularly. I think this worried him as well. And whenever a tax department official came to TV Globo’s head office, Roberto would get very angry. I remember one time when he got on an airplane and flew to Brasilia to complain to the president. Finally, he decided – I don’t know why – that I had to be removed from office. And so the president started negotiating a social pact with the congressional leaders; the social pact entailed the government’s commitment to implement a number of measures. All signs point to the fact that a meeting was held to close the deal and a senator asked the president: “Well, this means that we have to substitute the ministry of finance’s team – we have to appoint new people”. The president replied: “That’s correct”. Another senator telephoned Roberto Marinho to tell him: “Maílson is out”. Roberto – rashly – went to the newspaper room at 9:00 p.m. and personally changed the front-page headlines of the next day’s newspaper to headlines, the contents of which I will never forget: “Inflation topples Maílson”. But this is when the transformations – which he had not perceived – became clear: all the press supported me. The reaction was so strong that he had to step back. The ministers of the armed forces spoke to the president and told him he could not fire the minister of finance at that moment, as this would cause a terrible impression. Roberto Marinho had miscalculated his evaluation and, had not realized that his action would strengthen me. And I stayed on until the end of my term in office. I survived Roberto Marinho.

In the first chapters of your book, you wrote, “How can a poor boy from the state of Paraíba tell the president that he has to resign and be taken seriously?”. How did this happen?
I think the country might have had lower inflation rates if he had accepted my proposal. Fortunately, what we had feared did not materialize. Inflation was skyrocketing – it was coming close to 50%. Due to upcoming elections, the situation got worse. We had concluded that uncertainty about the outcome of the elections was having an effect on growing price increases. I recalled clearly what had happened in Argentina. Menem, who was running for presidential office on a populist platform, promising a huge salary increase – this was something totally irresponsible – was elected. At that moment, the Argentine price system went crazy and inflation quickly escalated to 200% a month. In Argentina, seven months elapse between the time a presidential candidate is elected and the time he takes office; this meant that Argentina would drag on with an inflation rate that closely resembled that of Hungary. So the incumbent president – Raul Alfonsin – and Menem came to an agreement and Menem took office earlier. When he took office prior to the scheduled date, inflation dropped. In Brazil, three months elapse between the outcome of the election and the taking of office. We feared that inflation would run out of control during this period. I talked to President Sarney about the possibility of his resignation. This did not mean that he was unable to run the country – this was meant to be an action for the instant renewal of legitimacy. The point was that an elected president with massive support from the population would be able to deal with the inflation issue more credibly, with the strong support of Congress and  public opinion. The president listened to my arguments. He said: “I will think about it”. He called me one day and said: “I think it’s time to discuss that idea of yours”. We had a secret meeting in Brasilia; the meeting was attended by 10 ministers. The discussions were very tense, with some dramatic moments, during which people raised their voices. The minister of the armed forces said it was a cowardly act for the president to resign. The president said he wanted some time to think this whole thing through and I left with the feeling that he had decided to stay in office. Nowadays, I think that was the right decision, because we could have caused a damaging inflationary effect on society and on the economy – the actual damage was less intense; but I believe that the cost was much lower than the benefit arising from the president’s decision to stay until the end of his term in office and oversee a peaceful transition to the next government, in spite of the drama related to the economy. Power was handed over to a president elected under full institutional and political normalcy. I can say that if I were to go back in time and sit in my chair again, I probably would have been against my own idea.

To conclude, what are your expectations of the new government?
The president’s speech when the outcome of the elections was announced was very encouraging, because she accepted very serious commitments to fundamental issues. She is committed to democracy, freedom of the press,  the autonomy of the regulatory agencies (something which was considered a “burden” by the Lula government),  responsible macroeconomic management,  a floating foreign exchange rate, a primary surplus, and  the autonomy of the Central Bank. I think we have to give a vote of confidence to the newly elected president. The newly-appointed minister of finance is, in principle, against this commitment, because he was the person responsible for the significant deterioration of the government’s accounts and for the disregard of the principles that govern a good public finance system. Nobody believes the government’s numbers any more. However,  I have to give him the benefit of the doubt. The minister said things that were incompatible with his actions, but I understand that he is following the guidelines set in place by the new president. Two appointments allow us to reinforce this vote of confidence. The appointment of Alexandre Tombini as president of the Central Bank is one of them. He is one of the best technical experts in the Central Bank. Another good measure was the appointment of Antonio Palocci, one of the most sensible members of the PT Party (Worker’s Party) as regards economic issues. It is reassuring that he was appointed as Chief of Staff, a key position in the government structure. He will deflate any possible attempts at deviation from the fundamental issues that the president announced on the day of the election outcome. However,  the president is taking office in a highly challenging environment. She is going to exert her power without ever having had the opportunity of dealing with a similar challenge or without ever having spent a long period of time in an executive position in the government. The economy, which had been booming, is expected to slow down; employment and income, however, will continue on the rise; the foreign exchange rate will remain stable; inflation is expected to remain within the inflation targets, if the current economic policy is maintained; and the interest rate will go up at the beginning of the year. We have a solid financial system, a result of the former Proer – the rescue policy for the Brazilian banking system – and macro-economic stability (floating foreign exchange rate, autonomous Central Bank, primary surplus in the public sector, low inflation under control) and a comfortable external situation with international reserves that are higher than the foreign debt. The president’s main challenges will be to turn fiscal deterioration around and invest in infrastructure; major reforms are unlikely. However, as I already said before, Brazil nowadays has strong institutions which put a damper on any attempts at populism or authoritarian measures and the legitimacy depends on economic stability. We cannot forget the role of the press, which penalizes irresponsible and authoritarian actions. In short, the country will continue doing well.