When Henrique Meirelles noticed Brazil’s vice-president entering the room, he almost had a fit. No one bothered warning him that Jose Alencar Gomes da Silva – one of the staunchest opponents of Brazil’s tight monetary policy, of which Meirelles was the architect – would also be attending a Sao Paolo reception hosted by a Brazilian news magazine. Gomes da Silva, in the throes of his battle against cancer, had long pursued a crusade against high interest rates – perceived by many as an economic anomaly set against Brazil’s spectacular recovery and vigorous growth in recent years.
“The idea that high interest rates are an instrument to control inflation is valid,” President Lula’s outspoken deputy would tell the audience of decision makers. “Yet, just as good medicine, they need to be injected after a safe and sound diagnosis is established.”
They call it friendly fire. Fierce criticism tended to come less from the opposition than from within the government camp. But after years of monetary policy bashing and criticism against the central bank’s so-called conservatism from the vice-president and others, Henrique Meirelles seems resigned to it.
There have been times – including earlier this year – when Meirelles sounded so much of an isolated voice in government that he might have considered resigning, although he has never commented on this publicly.
But in the eyes of many investors, he has delivered the goods on the inflation front and, in doing so, gradually secured the confidence of President Lula. As a result, he has emerged victorious in the protracted tug-of-war with the pro-development wing of the Lula administration.
Yet Meirelles, ever conservative, strikes a note of caution. “It is a little bit premature to say that we won the battle,” he tells Emerging Markets.
“Many still think in Brazil, especially old-fashioned politicians or business leaders, that a good way to grow is allowing inflation to go up and to have a loose monetary policy and to provide subsidized credit to corporations,” he explains.
“This group of thinkers adds a very high level of tension to the monetary policy committee meetings. But I think that the prevailing view in Brazil is increasingly along the lines of the mainstream view in most countries nowadays [inflation on target]”.
Meirelles, a former academic who became a BankBoston consultant in 1974, is on the verge of becoming the longest serving Brazilian central banker, if he stays on for another nine months (until June 27, 2009).
Although he feels great pride in having contributed to bringing his country’s finances on the path to stability, he still reckons that Brazil should move towards granting formal independence to the central bank, as opposed to the de facto autonomy that he has personally enjoyed.
“The level of awareness [of the importance of this issue] is greater, but it is not yet an established concept in Brazil. It is not written in the law; it is something that Brazil still needs to deal with,” says Meirelles. “It is necessary, and it is probably the most important institutional challenge that Brazil has for the next years.”