The international legal system established by the Bretton Woods Treaty consecrates two basic exchange regimes: free convertibility and inconvertibility. In the first one, we have presently two variations: fluctuating exchange, as in the USA, Japan, United Kingdom and Switzerland, and fixed parity, as in Argentina and Hong Kong. In the second, we include a great number of developing countries, including Brazil. Despite the Assumption Treaty of 1991, that created Mercosul, having established among the goals of the commercial block the free circulation of currency, Brazil has persisted for all these years as the only country in the area with an anachronistic exchange control regime.
The stubborn attachment on the part of the Brazilian government to exchange control is explained by the mechanism of exchange anchor which guaranteed that the population and the private sectors paid for the cost of state inefficiency. That is because the overvalued exchange lowered import costs and reduced inflationary pressure. On the other hand, the resultant price to pay was loss of Brazilian product competitiveness. Clearly, such mechanism, for its superficiality, lack of sophistication and of consistence, could only function as a short term regime and only longer as when permitted by substantial reforms in the Brazilian State and the national legal order. In the absence of such reform, financial and economic indexes and exposure of the frailty of national policy led to the loss of Brazil´s credibility before the international markets. Resultantly, the country has had no access to the voluntary international financial markets and does not have the conditions to even maintain an adequate level of commercial lines, indispensable to international exchange.
Some of the great beneficiaries of this absurd exchange policy have been our partners in Mercosul, particularly Argentina that adopted a free exchange regime fixed to the U.S. dollar. This regime, characterised by its non-penalisation of the national product, already benefited by Brazilian policy, and due to free convertibility, acquired great credibility with international investors. Its huge vulnerability was in the enormous dependence on the express commercial surplus it obtained from Brazil and in the frailty of the Brazilian exchange policy. Last year, only the State of São Paulo acquired more Argentine products than the United States. Predicting the course of inexorable happenings, for more than a year the Argentines have proposed a monetary union in Mercosul, politely rejected by the Brazilian negotiators.
The devaluation of the Real realized in the last days, without viable alternative conditions, was the worst scenario hypothesised by strategic observers, in the private sector as in the public sector, neutralising all the conquests of monetary stability. In fact, a strategic measure does not even exist for this devaluation policy. The alleged free exchange recently implanted by Central Bank deals solely with the free establishment of a currency exchange and not with free convertibility. Consequently, it is only a tentative reactive measure, resulting from the incapacity of the monetary authority to artificially sustain the Real at the elevated levels it was maintaining and to count on a policy of strategic character that would allow to act with some hope.
Without free convertibility and policies that allow it, Brazil will continue to be cornered, diminuative in its incompetence to formulate and implant strategic policies indispensable to the affirmation of its credibility in the international community and to Brazilian product agent competitiveness. In the same manner, the pressure from the Mercosul partners will be enormous to recover competitive advantages. Owing to the fact that fixed parity in Argentina is determined by law, the devaluation of the peso can not occur by decision of the monetary authority, as in Brazil, but depends on a act of Congress. Thus, Argentine pressures will be probably concentrated on tariff measures against Brazil that will certainly put at risk the common external tariff and Mercosul initiative.
The gravity of the moment must not be underestimated. The Nation has everything to lose as result of the ineffectiveness and incompetence of its politicians. Brazil´s vulnerability is greater today than in the “Sarney era” and the aspirations of the people are even greater. Today, the recent measures accorded with the International Monetary Fund are not enough. It is necessary to go further. The government must not only stop raising taxes, but it must implement administrative efficiency and, instead of insignicant and tentative exchange measures, it must formulate strategies that will assure the country´s prosperity.
Lawyer admitted in Brazil, England and Wales and Portugal. GATT and WTO panelist. Brazilian government ad-hoc representative for the Uruguay Round of the GATT. Post-graduation professor of the law of international trade.