“Technicality” My Ass: Fiscal Rules Matter

Dilma is being impeached over Brazil's version of our "bochinche parafiscal". Venezuelans, of all people, are on incredibly thin ice dismissing this stuff as a harmless technicality.

The one thing about Dilma’s impeachment everyone seems to agree on is that the reason she’s being impeached isn’t really the reason she’s being impeached. The charges against Dilma are dry and technical. She’s charged with massaging budget numbers to avoid cutting spending in an election year, in violation of budget rules. Big whoop, right?

Wrong.

The details are…detailed. But Dilma is being impeached for the kind of politically-driven illegal spending that Venezuelans know only too well. The economics are clear: taken to their wildest extremes, the types of violations Dilma is accused of will yield the kind of macroeconomic chaos Venezuelans have been living with for some years now.

Here’s the short version. Brazil has a law in place to ensure that government spending doesn’t go haywire. The government is legally bound to run a primary budget surplus which means that, not counting the money it spends servicing its debt, it has to take in more in revenue than it lays out in spending on any given year.

That’s a tough fiscal rule – arguably, too tough – but in a country with a history of macroeconomic chaos set off by fiscal laxity there’s a decent case to be made that you’re better off with fiscal rules that err on the side of toughness. (Surprise surprise, before the current scandal hit, Dilma had been busy trying to weaken these rules.)

 
If Venezuela had had institutions strong enough and independent enough to boot Chávez out of office back when he started shaking down the Central Bank for a “millardito”  in 2004, Venezuelans would not be dying in numbers for lack of simple medicines today.

Dilma is being impeached for cooking the books to sidestep the primary surplus fiscal rule. Long story short, when she was up for re-election, it started to look like her government would miss its primary fiscal surplus requirement. But it was an election year, you sure as hell don’t want to cut spending then. (Sound familiar?)

So what did she do? She set up a Brazilian version of the bochinche parafiscal: taking some spending off of the government books and spinning it off to non-budget entities so it wouldn’t count as part of the government budget, but with the understanding that the government was still on the hook for it.

It’s a little as though Maduro was being impeached for shoving public spending off of the budget and onto Fonden, where nobody can scrutinize it.

Now, here’s the part that gets me: if a Frenchman wants to call that a “harmless technicality”, well, ok. France has never seen honest-to-God hyperinflation, perdónalos señor que no saben lo que dicen. If a gringo, or an Australian or an Irishman wants to say that? I get it. It’s wrong, but I get it.

But a Venezuelan? A Venezuelan in 2016!?

No, chamo, no.

We do not get to blithely snigger at up-tight Brazilians and their up-tight budget rules. Venezuela is living the ruinous macroeconomic consequences that are the logical endpoint of letting the government spend with no restraint right now. Today. Ahoritica mismo. 

Let me put it another way: if Venezuela had had institutions strong enough and independent enough to boot Chávez out of office back when he started shaking down the Central Bank for a “millardito”  in 2004, Venezuelans would not be dying in numbers for lack of simple medicines today. If we’d had the fortitude to say “up with this we will not put” when Chávez began shortchanging FIEM, otro gallo cantaría.

If we’d had institutions with the foresight to see that a government that doesn’t respect fiscal rules is a live danger to its people, we wouldn’t be in this mess today.

Personally, I’m all for what Brazil’s congress did today: they put a hard stop to fiscal irresponsibility before it spun out of control and began destroying people’s livelihoods.

Let gringos dismiss the charges against Dilma as technicalities if they want. We, of all people, don’t get to do that.

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