Should Brazil Use its International Reserves?
Frequent pressures have been exerted in the sense of “use the reserves to stimulate renewed economic growth”. The Central Bank knows the history of the many foreign exchange crises experienced by the country, all of them produced by economic policy mistakes, and certainly has developed institutional antibodies to immunize it against these pressures. We don’t know the reason why Tombini “leaked” the story that he intended to step down from his position as head of the Bank, but we suspect the leak was a message not to touch the reserves.
Our response to the question posed in the title of this work is a resounding NO! Governments with strong fiscal imbalance don’t have the freedom to sell reserves, and that should end the discussion. However, the recent debates on the theme have a huge measure of confusion derived from points that are highly relevant, but not widely understood, related to the institutional relationship in Brazil between the National Treasury and the Central Bank, as well as the peculiarities of “Brazilian” concepts of the public debt (be it gross of net). The other objective of this report is to clarify these points.
We end by presenting arguments that, in the current situation of fiscal imbalance, are contrary to the sale of reserves, even with the aim of reducing the public debt. Softer actions, such as exchanging currency swaps for reserves, would also tend to accentuate the imbalance instead of helping to reduce it.
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