Monetary policy fulfilled its role: it gave way, activity lost steam and the debate about the beginning of the cycle of cuts returned to the center of the agenda. But it is insufficient to explain why producing, investing and financing projects in Brazil remains expensive, even when prospects for it begin to improve.
The most recurrent and superficial explanation always points to high interest rates in Brazil. Although it is true, structurally high interest rates are more the consequence than the cause.
Brazil remains expensive, mainly because the risks here are multiple, very high, diffuse and poorly addressed. This is an institutional challenge, in which rules, incentives and patterns of behavior combine to make economic decisions persistently more expensive. These elements distribute costs and concentrate benefits that are often questionable.
Recent advances, such as those on consumption, are important and should significantly reduce allocative distortions and transaction costs over time. Less cumulativeness, greater transparency and less future litigation help to make the business environment more rational. Still, it would be a mistake to assume that legal changes alone are enough to reduce the Brazil cost. Experience shows that the cost lies not just in the design of the rules, but in the way institutions operate and the incentives that guide their use. It is not uncommon for the judicial process to distort choices in the approval of rules and laws.
In Brazil, litigating is often economically rational, and this leads to hyperjudicialization. The expected cost of judicialization tends to be low given the potential benefit, long deadlines favor postponement, and the unpredictability of decisions in the various judicial instances increases uncertainty. When recourse to the Judiciary does not impose a relevant economic cost on the individual agent, litigation ceases to be an exception and becomes part of the decision-making strategy. Relying on the lack of convergence in the interpretation of the law yields benefits and changes the pattern of incentives.
Thus, legal risk stops being a rare event and becomes a permanent pricing variable. More expensive credit, shorter terms, the requirement for high guarantees and greater selectivity in investment are usual and defensive responses to an environment in which the application of the law is uncertain and the collective cost of judicialization is not properly appropriated.
A relevant part of this situation persists because institutional incentives are not aligned with the reduction of microeconomic obstacles. Public decisions tend to respond to visible, short-term pressures with high political returns, while the costs associated with legal uncertainty, excessive judicialization and low institutional coordination are diffuse, gradual and poorly attributable. In this environment, the system rewards postponement, dispute and defense, instead of cooperation, predictability and productive investment.
The same reasoning applies to taxation. Even with advances in system design, income taxation remains complex and unstable, and tax litigation remains high. In many cases, disputing is more financially attractive than complying with the established rule. The consequence is not just fiscal, but economic: immobilized capital, prolonged uncertainty and additional costs incorporated into prices and investment decisions.
These misaligned incentives are not restricted to the public sector. Companies have learned to operate in an expensive and uncertain environment. They pass on costs, shorten horizons, invest in legal and regulatory protection and prioritize defensive decisions. Part of the Brazil cost persists because it was internalized as operational normality. And because individual adaptation often seems more rational than collective coordination, which is always more arduous and uncertain.
There are also costs that rarely enter the traditional economic debate, but have a concrete impact on business decisions. increases spending on security, insurance and logistics. Low educational quality reduces productivity and requires recurring investments in training. Institutional insecurity discourages long-term projects. These factors do not appear in the monetary policy minutes, but they appear every month in companies’ spreadsheets.
Reducing interest rates helps, cyclically. But making Brazil less expensive requires something more difficult: realigning incentives. Institutions need to internalize the economic costs of their operation; the system must reward cooperation and predictability over litigation and delay; and the private sector needs to return to investing in efficiency, not just in defensive theses.
A structurally cheaper Brazil is the direct result of this adjustment. It is not a country with artificially low interest rates, access to the Justice system without adequate cost compensation, or expansion of public spending dissociated from the evaluation of results. It is a country in which a greater number of infrastructure, innovation and productivity projects become viable; in which credit stops being excessively selective; and in which growing stops being something sporadic and becomes permanent. Where monetary cycles matter less and do not impede long-term strategies.
Brazil will be better and fairer when it is cheaper to cooperate than to litigate, to invest than to protect itself, to produce than to delay.
In this environment, macroeconomic stability ceases to be an end in itself and becomes the starting point for more sustained and less frustrating growth. It is in this adjustment of rules, incentives, standards of behavior and collective commitments that the country’s real challenge lies. And he is huge.
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