He criticizes the economic policy of the Luiz Inácio Lula da Silva government. The former president of the Central Bank compares the model to a car that spends a lot but doesn’t move.
“The Palace [do Planalto] Step on the accelerator, the Central Bank steps on the brake, the car keeps moving very little, in the same place, with the tires screeching, using a lot of energy, making smoke, noise, but the progress is very small. It’s a situation of inconsistency”, he analyzed.
Franco spoke about the topic in episode #138 of the program Outliers InfoMoneyled by Clara Sodré and Fabiano Cintra. “This situation brings risk and creates financial tension. The financial system is stressed, companies become excessively indebted. An RJ explodes [recuperação judicial] here and it could be a chain reaction”, he warns.
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Gustavo Franco states in the podcast that the current Lula administration failed in trying to meet the fiscal target more by increasing revenue than by cutting spending.
“It was a bit of a speech from the minister [Fernando] Haddad wanted to express, from the government’s point of view, that it was possible to marry this story of fiscal imbalance with a solution from the left, which would be to charge taxes from those who don’t pay”, he points out. “It’s an old issue with the Brazilian Federal Revenue Service, which says that for every R$1 paid in tax there are who knows how many people evade, so it would be enough to charge taxes to solve the problem”, he adds.
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“No, it’s not like that. This is a falsehood, this is a lie”, guarantees Franco, who also states that Brazil already has a super high tax burden, and the attempt to increase it under this government has now failed. “It failed politically, it failed in practice. It’s not through taxes that we’re going to solve the fiscal problem, it’s through spending.”
“The problem with Minister Haddad’s speech is that it seems like spending cuts are a right-wing problem, and it isn’t. It’s a common sense problem. Budgetary limits are not a neoliberal, ideological, right-wing or left-wing issue. It’s a matter of mathematics. This spoiled the conversation a bit, because any debate on spending cuts turns into ‘the guys who want the minimum state’. They come up with this little talk, in short, a bit of a farce”
For Gustavo Franco, a graduate in Economics from PUC-Rio with a doctorate from Harvard University, considering fiscal adjustment an agenda for right-wing parties poisons the public debate and is historically incorrect.
“From then on [a primeira eleição do presidente Lula, em 2002]I think the perspective on Brazil has changed: ‘look, a group created the stabilization plan, but there is an alternation of power, and those who come, who are from the opposition, keep everything the same’. They kept everything the same: inflation target, agreement with the IMF, everything correct”, says the economist. Control over public spending, he states, would be maintained in the Lula 1 and Lula 2 governments (between 2003 and 2010), but not by his successor and party colleague.
“We ended up with 3% of the primary surplus from the end of 1998 until 2012, so it’s not an illusion. We started this period with debt/GDP in the 60% range and ended 2012 in the 30% range. But then, do you know what happens? It starts with D: Dilma Rousseff, the new macroeconomic matrix, starts the conversation that, ‘ah, this is a neoliberal thing, austerity'”
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‘Budget all crooked’
One of the fathers of the Plano Real, Franco considers that the economic plan resolved the institutional organization of the monetary system well – but not the fiscal organization of Brazil.
“We have an institutional organization that is still primitive, a way of making the public budget all crooked, and then it always comes out wrong. The congress is where there should be a serious discussion about the country’s limits and possibilities, about the dreams and possibilities that are taxation”, he states. “Politicians are averse to the idea of competing with each other for scarce resources. It’s a somewhat obvious reality for the economist, the person who lives in finance, scarcity. But for them it doesn’t exist”
Next government
Critical of the current Lula government, Franco is hopeful about a new mentality at Palácio do Planalto – even in the case of re-election.
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“As of January 1, 2027, it is possible that we will have a new leadership with a new head. Or even an old leadership with a new head. The electoral debate can perform both magic, okay? We’ll live to see”
Despite considering 2026 a year unlikely to see significant changes in the direction of the economy, the Rio Bravo Investimentos advisor states that the electoral period is valuable for the public debate on ideas that will be implemented in the coming years.
“The president who takes office on January 1st must have an action plan that responds to anxieties that, I hope, appear in the electoral debate, and that the presidential candidates are confronted”, he states. “We have ambitions, our children are anxious, they are heavily in debt. The child born today is born owing 80% of GDP. What will happen? Will she have to pay taxes to pay this bill, or will something happen?”
