Amid an eye-watering increase in commodities prices in Brazil, one of the potential solutions being floated is the implementation of subsidies to cushion the negative social impact caused by increasingly expensive fuel and electricity, among other items.
During an event organized by the Bank for International Settlements, Central Bank Chairman Roberto Campos Neto warned, however, that such measures could turn into permanent expenses, instead of temporary solutions.
“You can transfer part of these positive shocks to fix social problems by way of subsidies. It’s a good solution, but the problem is that once you create the subsidy, it could become permanent spending,” noted Mr. Campos Neto.
Allowing prices to float freely until reaching stability can be socially and politically risky. Another option, the Central Bank chairman said, would be to interfere directly in commodity prices — but this would hinder investment and cause problems for the productive sector.