Freedom may remain elusive for Brazil central bank head

Bloomberg

Ilan Goldfajn is racking up the milestones as Brazil’s central bank president, but he’s still a long way from securing the institution’s ultimate goal: greater independence.
Since taking the helm in June last year, the 51 year-old former Itau Unibanco chief economist has helped bring inflation to an 18-year low, hastened the end of subsidized state loans, and saw his bank board nominees breeze through their congressional hearings. Such achievements and his more transparent communication have boosted the bank’s credibility, which had been tarnished by its failure to hit its inflation target under Goldfajn’s predecessor.
Goldfajn’s intention to write increased central bank autonomy into law at the
moment doesn’t have much support in
Congress or President Michel Temer’s administration, according to six legislators, three presidential aides and a senior
central bank official.
Neither the aides nor the bank official were authorized to speak publicly.
The ruling coalition has bigger fish to fry in trying to pull the country out of its worst recession on record and surviving a barrage of corruption allegations. Most stakeholders also consider the central bank to be functioning quite well and see its de facto autonomy as sufficient. Why use political capital to fix something that isn’t broken, goes the argument.
Yet political interference, or at least pressure, has been a constant in Brazil’s recent past and, with the outcome of next year’s general election uncertain, it could become an issue again. Former President Dilma Rousseff galvanized supporters in her 2014 re-election bid by demonizing the idea of an independent central bank, saying it would benefit rich bankers and exacerbate poverty.
“It’s legislation that should be presented as soon as possible,” said Goldman Sachs chief Latin America economist, Alberto Ramos. “It’s not a problem today because there’s no political interference, but it may become one in the future due to the risk of more populist candidates.”
Under current law, any of the bank’s nine directors, including its governor, can be fired by the president at any time, making the monetary authority in Latin America’s largest economy something of a laggard among regional peers. Central bank independence has been in place in both Chile and Mexico for over 20 years.
The central bank is still detailing its legislative proposal but most previous bills presented to Congress included some sort of fixed mandate for its directors. The monetary authority declined to comment for this article.
“Write central bank independence into law and Brazil’s credit risk will fall,” Goldfajn, who holds a doctorate degree in economics from the Massachusetts Institute of Technology, told Isto E magazine earlier this year.
Government leaders say in principle the coalition supports the idea.
“The question of autonomy forms part of Temer’s reformist spirit,” Fabio Ramalho, vice president of the lower house of Congress, said in an interview.