This article aims to demonstrate the incapacitation of the State in Brazil as an inducer of economic and social development with the adoption of the public spending ceiling and the autonomy of the Central Bank as part of the strategy of globalized neoliberal capitalism to transform it into a minimal State. Minimal state is the name given to the idea of neoliberal capitalism that the role of the state within society should be as small as possible, exercising only those activities considered “essential” and of the first order. The strategy of neoliberalism to transform the Brazilian State into a minimal State began in 1990 as part of the strategy of globalized neoliberal capitalism for Brazil when the neoliberal economic model was adopted which, among other economic evils it produced, culminated in the adoption of the policy of public spending limitation during the Michel Temer government and the autonomy of the Central Bank during the Jair Bolsonaro government. The public spending limitation inserted in the Brazilian Constitution based on PEC 55/2016 during the Michel Temer government implies that public spending will be frozen for 20 years, compromising public investments in energy infrastructure, transport, communications, education, health , basic sanitation and popular housing necessary for the economic and social development of Brazil. Another absurdity was the Complementary Law 179/2021, which established the autonomy of the Central Bank, which makes it impossible for the federal government to adopt economic, fiscal and monetary policies articulated with each other, as is currently the case, insofar as the recessive monetary policy imposed by the Bank Central with extremely high interest rates makes the Lula government's effort to promote the resumption of national development unfeasible. In addition, there is an evident fact which is that the adoption of interest rates as a method of controlling inflation has not worked in Brazil because inflation rates exceeded the inflation targets from 2008 to 2015 and also in 2021 despite the adoption of extremely high Selic interest rates from 2010 to 2022. Brazil cannot do without a State capable of acting as an inducer of its development. For this to happen, it is necessary to remove the public spending limitation and the autonomy of the Central Bank.

1. 1
THE INCAPACITATION OF THE STATE IN BRAZIL AS A DEVELOPMENT
INDUCTOR WITH THE PUBLIC LIMITATION SPENDING AND THE
AUTONOMY OF THE CENTRAL BANK
Fernando Alcoforado*
This article aims to demonstrate the incapacitation of the State in Brazil as an inducer of
economic and social development with the adoption of the public spending limitation and
the autonomy of the Central Bank as part of the strategy of globalized neoliberal
capitalism to transform it into a minimal State. Minimal state is the name given to the
idea of neoliberal capitalism that the role of the state within society should be as small as
possible, exercising only those activities considered “essential” and of the first order. The
minimal state is a type of state that seeks to intervene as little as possible mainly in the
country's economy, but also in social issues. Theorists of neoliberal capitalism also defend
the minimum collection of taxes and the privatization of public services. The neoliberal
doctrine advocates the smallest possible participation of the State in the economy, giving
preference to the private sector. Thus, the direct and indirect effects of reducing the size
of the State would be the reduction of taxation, market liberalization, privatization of
economic activities, less bureaucracy and a more favorable environment for business.
The strategy of neoliberalism to transform the Brazilian State into a minimal State began
in 1990 as part of the strategy of globalized neoliberal capitalism for Brazil when the
neoliberal economic model was adopted which, among other economic evils it produced,
culminated in the adoption of the policy public spending limitation during the Michel
Temer government and the autonomy of the Central Bank during the Jair Bolsonaro
government. With the public spending limitation, the Brazilian State was limited in its
ability to promote public investment with the financial asphyxiation to which it was
subjected and made it impossible for the Brazilian State to adopt economic, fiscal and
monetary policies, articulated with each other with the autonomy of the Central bank.
Due to these factors, the Lula government inherited a Brazilian State devastated by the
incompetence of the Bolsonaro government and incapable of promoting economic and
social development because, with the public spending limitation, the Brazilian
government will not be able to increase the Union budget, which will be frozen for 20
years since 2017 in accordance with PEC 55/2016 and the existence of a Central Bank
that adopts recessive monetary policies in opposition to the government's
developmentalist economic policy, which make the resumption of development in Brazil
unfeasible.
1. The public spending limitation and the financial asphyxiation of the federal
government
It should be noted that, with the adoption of the public spending limitation, the Brazilian
State lost the ability to act in the pursuit of economic stability in Brazil, given that it is
with the increase in public spending that the federal government will be able to
compensate for the eventual drop in household consumption ( C), private investment (I)
and exports (X) and the increase in imports (M) to maintain GDP growth = C+I+ G+X-
M or, with the reduction in public spending, offset the eventual increase in the household
consumption (C), private investment (I) and exports (X) and the fall in imports (M). The
public spending limitation inserted in the Constitution of Brazil based on PEC 55/2016
during the Michel Temer government was a crime committed against the development of
Brazil because it limited public spending for the next 20 years, starting in 2017, which
will only be readjusted based on the official inflation of the previous year with the

2. 2
possibility of revision from the tenth year onwards. This means that the federal
government will be prevented from preparing the Union's budget with a value greater
than that of the previous year, only being able to correct its values according to inflation.
Some public spending can grow more than inflation, as long as they are offset by real cuts
in other areas. This implies that, in practice, public spending will not be able to grow
during its 20-year term, that is, public spending will be frozen for 20 years, compromising
public investments in infrastructure of energy, transport, communications, education,
health, basic sanitation, and popular housing necessary for the economic and social
development of Brazil. This means that if the public spending limitation is maintained,
the Lula government will be unfeasible.
With the public spending limitation for the Union, the main trend is that, within a few
years, federal government spending will have an increasingly smaller share in the
formation of Brazil's GDP, compromising the country's economic and social
development, given that the federal government, responsible for implementing the
national economic policy, will be prevented from increasing public spending to combat
the recession, when it occurs, as it happens at the moment, to compensate for the drop in
household consumption, private investment and exports, according to with the Keynesian
model. In other words, the federal government is prevented from promoting economic
growth in Brazil or combating the recession by adopting compensatory measures from
the macroeconomic point of view. The spending limitation is, therefore, a “straitjacket”
preventing the Brazilian government from acting proactively to promote economic
growth and combat recession when it occurs. This is the reason why the insertion of the
spending limitation in the Federal Constitution constitutes a crime against the
development of Brazil, that is, a crime against the homeland.
The existence of the public spending limitation led to the absurdity of the federal
government having to prepare successive PECs (Projects to Amendment to the
Constitution) so that their limits were exceeded, as happened during the four years of Jair
Bolsonaro’s government, when they were created at least five exceptions that resulted in
R$ 839.95 billion in spending above the public spending limitation, in current values.
Most of the expenses incurred beyond what is allowed by Constitutional Amendment
95/2016 were authorized by the National Congress for actions to combat the Covid-19
pandemic. Before that, however, the limitation had already been exceeded the first time
just a few months after the beginning of the Bolsonaro government, with the so-called
Onerous Assignment PEC, presented in May 2019, of around R$ 46.1 billion, referring
to the distribution of pre-salt areas, which were transferred to states and municipalities
without being accounted for in the public spending limitation rule. In the same year, the
Bolsonaro government made a contribution of BRL 7.6 billion to Emgepron, which was
also not accounted for the purposes of determining compliance with the expenditure limit.
Emgepron is a state-owned company of the Ministry of Defense whose function is to
manage projects approved by the Navy Command and keep naval military materials up
to date. In 2020, with the explosion of the Covid-19 pandemic, Congress enacted a new
amendment to the Constitution that instituted the so-called War Budget, releasing
expenses from the spending limitation rule to face the coronavirus. As early as 2021, with
the approval of the so-called PEC of Precatories, the government postponed the payment
of debts already final and unappealable that should be settled in the following year, in
addition to changing the methodology for calculating the correction of the public
spending limitation.

3. 3
In 2022, the changes promoted by the Precatorios PEC allowed the government to stop
paying BRL 43.8 billion of the BRL 89.1 billion originally committed to payment of
precatory, in addition to earning another BRL 62.2 billion with the update of the public
spending limitation rule. In June 2022, on the eve of the start of the presidential election
campaign, the Bolsonaro government managed to approve a PEC that excluded an
additional R$41.25 billion from the public spending limitation rule. The amount was used
to finance the temporary addition of BRL 200 to the amount of the Auxílio Brasil
program, in addition to aid for truck drivers and taxi drivers, all valid until December
2022. Before taking office, Lula negotiated to exceed the public spending limitation with
the Transition PEC that proposes to free up space in the 2023 Budget for social programs
and a real increase in the minimum wage. With the measure, the Lula government will be
able to continue the payment of the Bolsa Família program of R$ 600 (plus R$ 150 per
child up to 6 years old) from January 2023. The total expected fiscal impact of the
proposal is R$ 198 billion, of which R$ 175 billion refer to Bolsa Família program and
around R$ 23 billion for investments, a value linked to an eventual excess of collection.
By removing these expenses from the fiscal rule, a space of R$ 105 billion is opened in
the 2023 Budget for health, education and security, among others.
It is, therefore, absurd to maintain the public spending limitation that prevents the
Brazilian government from promoting the country's economic development, given the
importance of government spending in the form of investments, mainly in infrastructure,
in the process of economic growth, as there is a growing need for the government to
intervene directly in the Brazilian economy in order to generate positive externalities for
producers and consumers. It is absurd, too, to have to prepare PECs whenever the federal
government has to exceed the public spending limitation. It is important to highlight that
public investment, such as that which the federal government usually makes in economic
and social infrastructure should not be considered as public expenditure. Public
expenditures are all disbursements that come out of the government's cash in the form of
cost or expense, that is, they do not generate a financial return, unlike public investment.
It is worth noting that, unlike government costs or expenses, public investment generates
benefits such as, for example, increasing national production or reducing production
costs, through expansion or modernization, for example, of economic infrastructure (
energy, transport and communication) and social infrastructure (education, health, basic
sanitation, housing).
Instead of adopting the public spending limitation as a criterion to avoid the lack of
control of federal government costs or expenses, the correct thing would be to prevent the
increase in federal government costs or expenses without the corresponding growth in tax
collection and not to freeze public spending as currently occurs. This means that the
federal government should only increase its costs or expenses if there is an increase in tax
collection. What is evident is that the adoption of the public spending limitation in Brazil
is part of the strategy of neoliberal globalized capitalism to weaken the role of the
Brazilian State, which is prevented from acting proactively in promoting Brazil's
economic and social development, thus facilitating, in this form, the domination of
international capital in the Brazilian economy. This strategy's primary objective,
therefore, is to undermine any capacity of the federal government to interfere in the
economic activity of the country, whose market would be at the mercy of globalized
international capital. It is urgent to end the public spending limitation for the good of
Brazil.
2. Central Bank autonomy and the unfeasibility of the federal government's
economic policy in promoting economic and social development

4. 4
It is another absurd thing that happened in recent years in Brazil when Complementary
Law 179/2021 established the autonomy of the Central Bank and that its president and
directors will have fixed terms of four years, not coinciding with that of the President of
the Republic. This Law establishes that price stability remains the fundamental objective
of the Central Bank, which, without prejudice to this objective, will also ensure the
stability and efficiency of the financial system, smooth fluctuations in the level of
economic activity and promote full employment. However, in practice, the Central Bank
with the presidency of Roberto Campos Neto, a convinced neoliberal and linked to the
financial system to which he has always provided service and always aligned with
Bolsonarism, cannot be expected to smooth out fluctuations in the level of economic
activity nor encourage full employment with its emphasis on adopting extremely high
Selic interest rates such as the current one of 13.75% while the country has an inflation
rate of 5.8% per year in 2022. It is absurd for Brazil to have the highest real interest rate
in the world, as shown in Figure 1. This discrepancy between the Selic interest rates can
mean incompetence, satisfying the interests of public debt speculators or the purpose of
sabotaging the Lula government.
Figure 1- Real interest rates in the world
Source: https://investnews.com.br/economia/ranking-de-juros-maio2022/

5. 5
Even if Central Bank directors argue that raising Selic interest rates is aimed at preventing
capital flight from the country and containing the advance of the devaluation of the real,
there is no justification for adopting such extremely high interest rates. In addition to
adopting extremely high interest rates, Central Bank directors have not given due
importance to containing the increase in the dollar in the country in the fight against
inflation, given that it has contributed to the increase in the inflation rate in Brazil in
recent years, above all with its impact on the increase in fuel prices, which rose with the
appreciation of the dollar against the real, in addition to the rise in the price of a barrel of
oil on the international market. Therefore, the Central Bank has failed either to fight
inflation, with extremely high Selic interest rates or to contain the increase in the dollar
against the real.
One fact is evident: with the autonomy of the Central Bank, the National Congress made
it difficult for the federal government to adopt fiscal and monetary economic policies
articulated among themselves, as is currently the case, insofar as the recessive monetary
policy imposed by the Central Bank with extremely high interest rates make the Lula
government's effort to promote the resumption of national development unfeasible.
Furthermore, there is an evident fact which is that the adoption of interest rates as a
method of controlling inflation has not worked in Brazil. In Figure 2, it can be seen that
inflation rates exceeded the inflation targets from 2008 to 2015 and also in 2021 despite
the adoption of extremely high Selic interest rates from 2010 to 2022, as shown in Figure
3.
Figure 2- Inflation in Brazil
Source: Macro Analysis

6. 6
Figure 3 shows the extremely high Selic interest rates adopted by the Central Bank, which
did not contribute to keeping inflation below the inflation targets established from 2008
to 2015 and also in 2021. Inflation rates were only below the inflation targets from 2017
to 2021, mainly due to the gigantic economic crisis that occurred in Brazil from 2016
onwards and the impact of the new Coronavirus pandemic, which contributed to the drop
in aggregate demand in the Brazilian economy and not due to the Selic interest rates
imposed by the Central Bank.
Figure 3- Evolution of the Selic rate from 2010 to 2022
Source: https://www.poder360.com.br/economia/selic-sobe-para-1275-a-maior-taxa-em-5-anos/
The fact that inflation rates have exceeded inflation targets, as shown in Figure 2,
unequivocally demonstrates that raising Selic interest rates is ineffective in combating
inflation in Brazil. The ineffectiveness of the method of raising Selic interest rates in
combating inflation in Brazil puts on the agenda the need for its replacement by effective
direct government action on the factors that generate inflation with the adoption of
concrete measures to eliminate demand inflation, cost inflation, monetary inflation,
inertial inflation, and the possibility of hyperinflation when they occur. The Lula
government should combat demand inflation for goods and services by planning the

7. 7
economy together with the productive sector so that national production meets the
domestic demand for goods and services. When domestic production is insufficient, the
Lula government should make an effort to import what the country needs. The Lula
government should fight production cost inflation by monitoring the evolution of wage,
raw material, input and tax prices to adopt measures that contribute to preventing their
increase without a corresponding increase in productivity and to encourage increased
productivity in agricultural production, industrial, commerce, services, electric energy
and oil production systems and cargo transport, and the increase of the government's own
productivity at all levels. It should be noted that increasing productivity means increasing
production over time, with the least use of resources, at the lowest possible cost and the
elimination of unnecessary expenses and waste. This can be achieved by using more
modern production systems and rationalizing the working methods used. To avoid
monetary inflation, the government has to prevent the uncontrolled issuance of currency.
To avoid inertial inflation, price indexation must be avoided. To avoid hyperinflation, it
is necessary to avoid inertial inflation.
3. Conclusions
The public spending limitation cannot continue financially asphyxiating the federal
government and the autonomy of the Central Bank cannot derail the economic policy of
the federal government in promoting economic and social development. The end of the
public spending limitation and the Central Bank's autonomy are the indispensable
conditions for the Lula government to promote Brazil's development. The future of Brazil
and the success of the Lula government depend on the removal of these two major
obstacles to the country's development, as they incapacitate the Brazilian State from
acting as an inducer of economic and social progress in Brazil. The reader of this article
needs to understand that Brazil left the condition of an agrarian country, backward, in
1930, for that of a modern country with the industrialization process that occurred from
1930 to 1980 thanks to the Brazilian State that acted as an inducer of the development
process national. It was thanks to the Brazilian State that Brazil achieved, from 1930 to
1980, the highest GDP growth rates in the world of around 7% per year and ranked among
the 10 largest countries in the world economy in the 1980s. In the period 1991/2022, the
federal government gave up planning the national economy influenced by neoliberal
theses that considered that it was up to the market to promote the expansion of the
economy. With the neoliberal economic model, Brazil had very low GDP growth rates,
suffered a process of deindustrialization, in addition to contributing to the outbreak of the
economic and social crisis in 2014 that lasts until the present moment. One fact is evident:
Brazil cannot do without a State capable of acting as an inducer of its development. For
this to happen, it is necessary to remove the public spending limitation and the autonomy
of the Central Bank.
* Fernando Alcoforado, awarded the medal of Engineering Merit of the CONFEA / CREA System, member
of the Bahia Academy of Education, of the SBPC- Brazilian Society for the Progress of Science and of
IPB- Polytechnic Institute of Bahia, engineer and doctor in Territorial Planning and Regional Development
from the University of Barcelona, university professor (Engineering, Economy and Administration) and
consultant in the areas of strategic planning, business planning, regional planning, urban planning and
energy systems, was Advisor to the Vice President of Engineering and Technology at LIGHT S.A. Electric
power distribution company from Rio de Janeiro, Strategic Planning Coordinator of CEPED- Bahia
Research and Development Center, Undersecretary of Energy of the State of Bahia, Secretary of Planning
of Salvador, is the author of the books Globalização (Editora Nobel, São Paulo, 1997), De Collor a FHC-
O Brasil e a Nova (Des)ordem Mundial (Editora Nobel, São Paulo, 1998), Um Projeto para o Brasil
(Editora Nobel, São Paulo, 2000), Os condicionantes do desenvolvimento do Estado da Bahia (Tese de
doutorado. Universidade de Barcelona,http://www.tesisenred.net/handle/10803/1944, 2003), Globalização

8. 8
e Desenvolvimento (Editora Nobel, São Paulo, 2006), Bahia- Desenvolvimento do Século XVI ao Século
XX e Objetivos Estratégicos na Era Contemporânea (EGBA, Salvador, 2008), The Necessary Conditions
of the Economic and Social Development- The Case of the State of Bahia (VDM Verlag Dr. Müller
Aktiengesellschaft & Co. KG, Saarbrücken, Germany, 2010), Aquecimento Global e Catástrofe Planetária
(Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2010), Amazônia Sustentável- Para o
progresso do Brasil e combate ao aquecimento global (Viena- Editora e Gráfica, Santa Cruz do Rio Pardo,
São Paulo, 2011), Os Fatores Condicionantes do Desenvolvimento Econômico e Social (Editora CRV,
Curitiba, 2012), Energia no Mundo e no Brasil- Energia e Mudança Climática Catastrófica no Século XXI
(Editora CRV, Curitiba, 2015), As Grandes Revoluções Científicas, Econômicas e Sociais que Mudaram o
Mundo (Editora CRV, Curitiba, 2016), A Invenção de um novo Brasil (Editora CRV, Curitiba,
2017), Esquerda x Direita e a sua convergência (Associação Baiana de Imprensa, Salvador, 2018), Como
inventar o futuro para mudar o mundo (Editora CRV, Curitiba, 2019), A humanidade ameaçada e as
estratégias para sua sobrevivência (Editora Dialética, São Paulo, 2021), A escalada da ciência e da
tecnologia e sua contribuição ao progresso e à sobrevivência da humanidade(Editora CRV, Curitiba,
2022)and a chapter in the book Flood Handbook (CRC Press, Boca Raton, Florida, United States, 2022).