President Jair Bolsonaro celebrated his first 100 days in the office by signing several decrees and proposals; among them, a bill to finally make Brazil’s Central Bank independent from the government. This campaign promise is far from being a new idea and has been floated by politicians on both sides of the aisle in the past. However, it has never moved forward. Will Mr. Bolsonaro be able to pass it?

That will depend on the government’s level of commitment and how much the project appeals to House Speaker Rodrigo Maia, according to political scientist Leandro Gabiati, director at Dominium Consultoria.

The government’s proposal is similar to a 2003 bill, sponsored by none other than Rodrigo Maia, who is a strong defender of liberal economics. Both bills foresee a four-year term for the Central Bank’s president, which would not coincide with the term of the Brazilian president. Officers would be appointed alongside the bank’s president. Chief of Staff Onyx Lorenzoni told G1 that the idea is to merge the government’s bill with the one Mr. Maia presented almost two decades ago.

“There is a mutual interest [in the bill]. The government is trying to push forward a more positive agenda, as a counterpoint to the negative evaluation of the first 100 days. If the bill is included in Mr. Maia’s proposal, he may put some effort into approving it”, says Mr. Gabiati.

Although the legislative agenda is occupied with the pension reform bill, Mr. Gabiati believes that a technical issue, with less popular interest, may progress much faster than the overhaul of the social security system. “The pension reform is unpopular and the discussion is quite heated. The new bill presented by Mr. Bolsonaro has room to move forward, if some members of Congress, especially Mr. Maia, engage themselves. I just don’t know if it could be approved in 2019.”

Why an independent Central Bank matters

The government sees the measure as another building block of the economic stability being built since 1994, with the creation of the Brazilian Real. During recent decades, different administrations have helped create a financial framework “which provides the basis for increasing productivity, economic efficiency and, finally, sustainable growth, which is society’s goal,” says the draft bill—seen by Exame.

Approving the bill would be a victory for the financial sector, which would benefit from more predictability in monetary policy.

Former Central Bank president Ilan Goldfajn and former Finance Minister Henrique Meirelles strongly support the measure. Mr. Goldfajn even included it as one of the main topics on his Agenda BC+, a list of priority actions which was maintained by his successor, the incumbent Roberto Campos Neto. But, until now, this effort has not been enough to overcome political resistance.

Currently, the bank is technically free to make its own decisions about monetary policy. However, this right is not guaranteed by law. The president enjoys the status of a cabinet minister and as such can be dismissed by the sitting head of state.

Creating terms for the bank’s top brass could be key as a way of reducing the perception of risk around the Brazilian economy. A new status could shield the country’s monetary policy from the short-term thinking of sitting politicians. The Organisation for Economic Co-operation and Development (OECD), the international body Brazil is so eager to be a part of, had already suggested the country should formalize the bank’s independence. Other OECD members, such as the United States, have independent Central Banks.

During the years of Dilma Rousseff’s presidency, there were persistent rumors of government interference in decisions over benchmark interest rates to meet political goals.

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BY The Brazilian Report

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