Anyone who understand economics knows that in the economic stagnation that affect Brazil at the time, economic growth is only achieved since the government raise its spending to offset the fall in consumption and investment. Who formulated this teaching was the great economist John Maynard Keynes in the mid-twentieth century. The argument put forward by the government that first need to reduce government spending and then to promote economic growth is totally irrational from the Keynesian perspective. In addition, the Michel Temer government is blackmailing with the population to say that the alternative is cutting government spending or tax increases. It is an unfortunate fact the Michel Temer government want to solve the economic crisis in Brazil that worsens every day with the adoption of fiscal adjustment that reduces public spending and tends to deepen the process of economic stagnation in the country.

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CONTROLLING THE FINANCIAL SYSTEM TO PREVENT ECONOMIC
DEBACLE IN BRAZIL
Fernando Alcoforado *
Anyone who understand economics knows that in the economic stagnation that affect
Brazil at the time, economic growth is only achieved since the government raise its
spending to offset the fall in consumption and investment. Who formulated this teaching
was the great economist John Maynard Keynes in the mid-twentieth century. The
argument put forward by the government that first need to reduce government spending
and then to promote economic growth is totally irrational from the Keynesian
perspective. In addition, the Michel Temer government is blackmailing with the
population to say that the alternative is cutting government spending or tax increases. It
is an unfortunate fact the Michel Temer government want to solve the economic crisis
in Brazil that worsens every day with the adoption of fiscal adjustment that reduces
public spending and tends to deepen the process of economic stagnation in the country.
To combat economic stagnation, the federal government should: 1) raise public
spending renegotiating with the financial system to reduce the burden of payment of the
public debt aimed at stretching its time; 2) drastically to reduce the Selic interest rates
(basic rate of economy) and those charged by banks to encourage private investment; 3)
encourage productive activity to combat inflation and, where not possible, to promote
the import of products to lower prices; and 4) to encourage exports to promote
economic growth by establishing the fixed exchange rate to replace the floating
exchange rate.
All this set of measures will only succeed if the government exercises, among other
measures, effective control of capital movements in Brazil whose liberalization
happened since 1990 during the government of Fernando Collor when it was introduced
the neoliberal model in the Brazilian economy. The liberalization of capital flows in the
Brazilian economy is central to the serious crisis affecting Brazil at the time. Regarded
as dogma by the worshipers of the god-market, of the free flow of capital makes up the
tripod of neoliberal macroeconomic policy adopted in Brazil - along with the high
interest rates and high primary surplus. Through this mechanism, Brazil was colonized
and turned into a wealth transfer machine of the productive sector to the national and
international financial oligarchy as has been happening since the 1990s.
It can be said that the free movement of capital is the node that connects the excessive
growth of public debt, the rapid expansion of interest rates and the transfer of national
wealth with the primary surplus in Brazil. Pressured by brutal public debt that reaches
R$ 4.5 trillion, the Brazilian government is forced to maintain extremely high interest
rates (14.5% per year) to attract new capital for the poor functioning of the economy. At
the same time, it helps to understand the existence of the primary surplus which aims to
ensure the payment of interest rates to the creditors of the public debt. This fiscal
tightening is required by lenders to give tranquility to the god-market and to attract new
foreign capital. The result of this nefarious model is known by Brazilians: the economy
stagnates, unemployment hits record, income plummets and the state has weakened its
ability to investments in economic and social infrastructure. On the other hand, money
flows freely to the rich bankers.
This mechanism, so idolized by neoliberals also has other negative effects. It makes the
risk of abrupt currency crises become permanent, as at any time foreign investors can

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leave the country - and this danger is instant, online. This threat further strengthens the
power of finance capital, which uses it as blackmail against the Brazilian government.
The Brazilian state becomes hostage being forced to do more concessions - liberalizing
reforms, the Central Bank autonomy, etc. as they are happening in Brazil since the
1990s. The neoliberal economic model that prevails in Brazil, anchored in the primary
surplus, inflation target and a floating exchange rate, restricts the domestic policies for
the country's development. It is this mechanism that must be stopped to prevent a
catastrophic future for Brazil.
Another pernicious effect of the free flow of capital concerns the incentive for illegal
activities. Taking advantage of the financial liberalization, the absence of regulation and
control, much of the illegal activities that degrade the planet, such as corruption, drug
trafficking, weapons, and human body organs and organized crime, are the ideal
environment for their valuation and legalization. One fact is clear: we live under the
dictatorship of finance. The hegemonic fraction of capital, the financial oligarchy
imposes its will in Brazil and worldwide, manipulates governments, undermines
national economies and legalizes illegal operations. The financial transaction is frantic,
without any control. The dictatorship of finance reigns supreme. The financial oligarchy
becomes the hegemonic fraction of the bourgeoisie.
Faced with the risk of having to submit to the dictatorship of finance capital, many
nations began to seek alternative paths. The so-called "developing countries" in Asia,
after the financial and foreign exchange crises of 1997 sought to overcome its external
vulnerability. Through various mechanisms, many countries returned to take measures
to regulate the entry and exit of capital. Overall, they now achieve greater economic
success and greater stability than those applying the neoliberal model as Brazil. This is
the case of China, where capital transactions rely on state authorization, financial
transactions with the outside, input or output of capital, are authorized by the
government. Another example is India, where is predominant the use of restrictions of
quantitative and administrative nature to capital transactions. China and India, which
never left the control of the capital, are now synonymous with continued economic
growth.
Unlike China and India, Brazil is a highly vulnerable country. To keep the fragile
functioning of the economy, the Brazilian government depends on the annual inflow of
capital from foreign markets expanding its dependence. This situation of dependence, a
sad mark of national history, reached the absurd during the FHC government that threw
open the financial orgy in Brazil. The Lula and Dilma Rousseff government kept intact
this dependence of Brazil it causing extremely high real interest rates that undermine the
national productive sector, the extremely high continued fiscal surplus that benefit the
creditors of the public debt and the free flow of capital that continues to generate joy to
bankers. This is also maintained by the government Michel Temer with its recessive
economic policy that threatens to lead Brazil to bankruptcy.
It is important to note that the entry of foreign capital entails numerous side harmful
effects. One is the exchange rate appreciation that undermines the competitiveness of
domestic exporters. It is this concern that made China to adopt a cautious foreign
exchange management opting for fixed exchange rate instead of floating exchange rates
in force in Brazil. In the face of the evils provided by the capital flow liberalization, it is
a requirement that capital controls can be carried out with the taxation on foreign capital
inflows. It´s necessary also to limit the volatility of flows requiring that a certain

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percentage of foreign investment is retained in reserve for certain number of days with
the Central Bank. This type of control called "lock-in" policy prevents the sudden
outflow of capital.
It can be said that capital controls can be part important for a strategy of growth and
sustained economic development, especially in economies marked by macroeconomic
instability as Brazil. These controls select capital flows, confining speculative capital to
manageable volumes and isolating the economy, to some degree, from external shocks.
Thus, capital controls act to reduce the volatility of exchange rates and interest rates,
helping to stimulate investment decisions in the economy.
* Fernando Alcoforado, member of the Bahia Academy of Education, engineer and doctor of Territorial
Planning and Regional Development from the University of Barcelona, a university professor and
consultant in strategic planning, business planning, regional planning and planning of energy systems, is
the author of 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 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. Muller
Aktiengesellschaft & Co. KG, Saarbrücken, Germany, 2010), Aquecimento Global e Catástrofe
Planetária (P&A Gráfica e Editora, Salvador, 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) and As Grandes Revoluções Científicas, Econômicas e Sociais que Mudaram o Mundo
(Editora CRV, Curitiba, 2016) .