MARGOLIS: Do you ever wake up and wonder how you moved from doctor to mayor to Brazil’s top economic authority?
PALOCCI: It all happened very rapidly, but I feel at home in this area. My role in the ministry is really to coordinate economic policies. I took care to select a qualified team of economists. The good thing is, there’s only one physician in the ministry.
Brazil’s economy has turned around dramatically since you took office. What’s gone right?
The beginning of [Lula’s] government was marked by a firm commitment to sound public finances and budget control. Our aim was to produce a positive shock to an economic process that was spinning out of control. So we undertook a policy of severe adjustment, and it worked. President Lula knew that [austerity] was not going to be popular. We could have let inflation go and easily provoked a spurt of growth–but that would have led to an explosion of prices and growing doubts over the sustainability of servicing our debt. So we locked the door on doubt and built a policy to restore stability. Once Brazil is stable, we can prepare for growth.
Everybody changes, but why did Lula and the PT turn to conservative economic policies?
I don’t consider this conservative. These are necessary policies. The PT was never against a balanced economy. What we criticized was the belief that economic stability alone would bring development to the country. That hasn’t happened. We have had 20 years of relative economic stagnation in Brazil.
Is it tough for you to manage and promote austerity?
I’d prefer to lower interest rates and distribute money for social programs. But in economics we can’t just promote growth. It’s still early. We expected a 40 percent inflation rate, and now it’s at 8.2 percent. The dollar was overvalued, but now it’s settled down. Credit is back, and we are having no trouble rolling over our debt. The economic reforms are on their way to being approved. Everything is looking positive. The remedy is bitter now because the illness is serious. People know there is no magic.
Many have criticized the country’s high interest rates, including Vice President Jose Alencar. Doesn’t that create confusion?
No. The vice president also says that he believes the economic policy is correct. His criticism is over interest rates.
A criticism he repeats daily…
OK, he likes the topic. I see no problem in this. The important thing is the [government’s] process must be respected, and that’s what is happening.
What remains of your old Trotskyist philosophy?
Perhaps things I’m not even aware of. For seven, eight years of my life, I was part of a Trotskyist organization. I read a great deal of Marxist theory. Certainly that [provided me] with analytical tools. But I’m not a prisoner of any model. What remains of that period is a belief that there is no way to achieve economic development without putting social justice as a central concern.
