Why the “Market”, so criticized by Lula, is essential to improve the lives of the poorest

By nradmin

), reaching 281 points. For the sake of comparison, at the height of the uncertainties of the Covid- pandemic, it reached 330 spots. After the negative repercussions, the petista said he had never seen a market “as sensitive as ours”.

The leadership of the Workers’ Party (PT) and allies of the president-elect also endorsed criticism of the market. “These people are not going to change what we did in the campaign. We are not going to do electoral fraud. Stop mimimi. This market is a disgrace, no one is starving in the market”, said Gleisi Hoffmann, president of the acronym.

Lula also said that “it’s no use thinking only about fiscal data, but about social responsibility. “Will the dollar rise, the stock market fall? Patience. The dollar does not fall because of serious people, but because of speculators”.

However, contrary to the narrative of the president-elect and allies, the financial market matters a lot for economic growth, job creation and for the government itself to have money to take care of people through social programs. In ten points, better understand this relationship.

1. What is this “Market”?

The market goes far beyond what in popular jargon is known as “Faria Lima”, the financial center of the country. It can be defined as every human interaction process of voluntary exchange of goods and services between economic agents. Among these agents are, for example, individuals like you, reader, me, companies like Gazeta do Povo and exchanges, such as the signature for you to read this article .

two. What is the role of the financial market?

Within the economic environment, there are individuals with available resources, the savers. As the value of money tends to depreciate over time, especially in a country with a history of inflation like Brazil, the search for investments is necessary to maintain purchasing power, as well as seek some real profitability.

On the other hand, there are the borrowers, who are economic agents who need capital to invest in the most diverse projects, such as companies, infrastructure, production of goods and services, innovations, hiring of employees, advertising, among other inherent actions to business.

In this sense, the financial market is nothing more than a tool that connects savers and borrowers, in order to optimize the allocation of resources and the flow of capital. It allows different individuals to protect their money from inflation and seek profitability by investing in large projects in the real economy.

In this sense, it is possible to raise funds in a quick, transparent and accessible way.

3. As companies use the market to finance their growth

Until October 2022, for example, issuances by companies in the financial market accumulated R$ 444 billion, according to a survey carried out by Banco Inter with data from Anbima (Brazilian Association of Financial and Capital Market Entities). They were issued through shares, debentures, real estate funds, credit notes and securitizations.

They are business organizations raising funds to expand, seek scale, produce better services and products, generate jobs in new projects.

4. Governments also depend on the market to finance themselves

But it is not just companies that use the market to finance themselves, but also the government itself. After all, the State is not financed only through taxation.

“The origin of the public bond market was born exactly with the need for governments to equate revenues and expenses in a scenario of conflicts and wars in the Europe. Instead of printing currency and generating inflation problems, it was thought of as an instrument to make the population itself save money and resources to invest thinking about the future in exchange for paying interest to the buyers of these credits”, explains Tiago Pessotti, chief strategist from Apex Partners.

Today the government is financed through the Direct Treasury, with three different instruments: the LFT (Financial Treasury Bills), the National Treasury Note type B (NTN-B) and the National Treasury Bills (LTN), each with its own peculiarities.

“The Treasury auctions take place practically every week. There is a calendar in which it is already programmed where the government will seek to raise money and how much in each one”, says Pessotti.

A large part of the volume of public bonds is financed by pension funds due to the relationship risk and return because they aim for the long term. “They are mixed capital foundations and private companies, in addition to many pension funds for municipal employees”, he says.

Although there are foreign funds participating in these auctions, most of the participants are Brazilian. In this sense, if the government eventually defaults and does not honor its debt commitments — as the Brazilian State has already done on five occasions, the last in the Sarney Government, in 1987 — the biggest losers will be the Brazilians who were waiting to receive their own pension.

5. How do government auctions work in the market?

Auctions are influenced by future interest, which determines the pricing of how much will be remunerated for each security. “That is, the greater the risk perception of a government not honoring its commitments, the more the government will have to pay for these bonds, and automatically the greater the financial cost of the debt will be”, says Pessotti.

Ultimately, if there is a perception that the government is not being fiscally responsible, buyers of these bonds may decrease their appetite for auctions, with the government raising less than the target for each auction. “As the public machine needs to continue financing itself, rates need to become more attractive, increasing the cost of debt financing by the government”, concludes Pessotti.

6. Lula knows the importance of the financial market

In 2012, for example, Lula celebrated when Brazil was awarded investment grade by rating agencies risk, as that would mean attracting a lot more money here. In his own words, the country was experiencing a “magic moment”:

“Brazil was declared a serious country, which has serious policies, which takes serious care of its finances and which, therefore, became deserving of the international trust that it had long needed”.

Due to economic policy errors in the Dilma Rousseff Government, with successive primary deficits from 2012, Brazil lost its investment grade, restricting the entry of foreign capital into the country. Until today, that degree of confidence in Brazil has never been achieved again.

7 Well-developed financial markets generate more robust economies

The study “Finance and Development: A Tale of Two Sectors of the American Economic Review”, published in the American Economic Review, demonstrated the causality between a market of well-developed capital and the economic development of a country. This is because the enrichment of a country is influenced by the level of the capital stock capital (savings), as well as the efficient allocation of these resources in a way that results in increased productivity.

Researchers have empirically demonstrated that part of the difference in economic prosperity between developed and emerging countries is explained by the difference in the level of capital market development. Developing countries register, on average, companies of smaller sizes than developed countries because there is not cheaper capital available for companies.

This occurs because they cannot finance their own growth, that is, they depend on just from the recipes to grow organically. In developed countries, where there are more possibilities to finance this growth from a better developed financial services ecosystem, the average size of companies is larger.

8. Does the financial market belittle the government’s social role?

“By no means”, sums up Aod Cunha, doctor in economics, former director of JP Morgan and former secretary of finance in Rio Grande do Sul.

“The financial market gains much more when the future scenario is one of more growth and increase in investments and company profits. This scenario can only be confirmed with an environment of inflation stability, low interest rates and where people are satisfied with the government and the country they live in”, he explains.

As someone who was part of financial institutions for many years, he says he believes that the vast majority of their members understand that Brazil is a country with a huge social deficit and a lot of inequality, needing to improve the quality of education and have social programs that bring greater equality of opportunities to people, “regardless of whether they are born rich or poor”.

“What we call the market is made up of people and institutions dedicated to studying what has gone right and wrong in Brazil and in other countries. And what is known is that no social improvement program remains standing if there is not a minimum of fiscal responsibility. If inflation and interest rates rise, the poorest suffer the most, with the loss of income and jobs”, he says.

9. Does the financial market have an ideology?

Allies of the president-elect criticize the position of the financial market in the face of the Transition PEC, accusing the market of being political and of opposition to the government. But Helio Beltrão, president of the Mises Institute and podcaster of Gazeta do Povo, disagrees.

“The market is not a subject bad guy sitting on a throne, but millions of individuals trying to protect their savings. There is no room for fans or ideology when looking for financial return”, he says.

The opinion is corroborated by political analyst Creomar de Souza, CEO of Dharma Politics consultancy. Asked if Faria Lima has a political preference for any political actor, he said that “she has a preference for doing business”.

“Roughly speaking, the market will tend to support a government or a candidate that gives clear rules of the game, or in average terms, the idea that there is predictability in terms of the business horizon”, he adds.

For him, in the electoral cycle of