The Government has completed a project to improve consigned credit for private sector workers.

The initiative, which is expected to be presented in the coming weeks, is one of the main measures within a set of actions aimed at reducing the cost of personal credit, where there is greater difficulty in reducing bank spreads.

“Today the highest spread is in loans for individuals,” Marcos Pinto, the Secretary of Economic Reforms at the Ministry of Finance, told the Brazil Journal. “Our goal is to cut this spread in half.”

Another idea under consideration is the use of Pix payments as collateral in financing for micro and small businesses.

“There is still a lot to do in this area of credit costs, a very full agenda for the next two years,” the Secretary affirmed. “The path is to improve guarantees.”

In this second part of the interview, Marcos talks about the priorities of the microeconomic reform agenda – including the Pé-de-Meia program and the reform of the Bankruptcy Law – and comments on excesses in the credit market.

Has the capital market leaned too much towards credit? Have there been exaggerations in incentives for tax-exempt securities? According to some managers, private issuances may even hamper the rollover of public debt because they compete for capital with the Treasury.

We do indeed have a very large volume of tax-exempt securities, which is distorting the functioning of the market.

We have done a good clean-up at the beginning of the year, but this impact will be felt over time. The volume of issuance of LCIs and LCAs, for example, is already decreasing by more than 50% per year.

In the long run, we need to use these incentivized securities less and let the market function, without directing credit to this or that sector.

Looking ahead, if there is exaggeration, the market has the ability to correct itself and return to rationality.

Of the recent microeconomic reforms presented, which ones are expected to have the greatest impact on economic growth?

One of the projects I am most proud to have participated in is Pé-de-Meia. It will have a very large impact.

Just as I am proud to have contributed to the development of Prouni, in a pro bono work when Fernando Haddad was Minister of Education.

There are currently 4 million workers with higher education who have been part of the program.

Pé-de-Meia will have a similar impact. Out of every ten Brazilian children, four live in poor families and, of those four, only two complete high school.

The program for retention in high school provides a scholarship for these poor students to continue in school. It creates a savings account, with R$ 1,000 for each year of their high school studies. They can only withdraw it upon completing the course.

Based on similar experiences in Colombia and Rio de Janeiro, we expect a one-third reduction in dropout rates. Just that alone guarantees 1% of GDP growth in the long term, as shown in a study by Ricardo Paes de Barros.

Another reform that will have a major impact is tax reform. The IMF estimated that we will gain 6% to 10% of GDP. We could become 10% richer. That’s a lot.

For those who doubt the number, I’ll just give one example. Today we tax investment in physical capital – with very high rates – because of the direct and indirect taxes that do not allow for tax credits.

In addition to the cost of capital, therefore, there is the burden of taxation. With these two variables, it becomes difficult to invest in Brazil.

And in the credit arena, what initiatives are being taken to reduce the spread?

We have already approved the asset guarantee framework, simplified the debenture issuance process, changed the rules for tax-exempt securities, and included pension funds as collateral. We have seven other structural law projects being processed in Congress.

We are ready to submit the private consignment project – which, in my opinion, will be transformative, because today the highest spread is in loans for individuals.

The normal interest rate, the average interest rate on free-use loans for individuals, is about 50%. Consignment is around 22%. It’s very different.

The main problem for consigned loans to take off in the private sector today is that you need an agreement between the bank and the employer, which is difficult to do, costly, and excludes small and medium-sized companies. With the new system, the payroll deduction will occur automatically when the worker changes jobs, the link remains.

The lender will be able to see much better who the debtor is. A person who has been in the same job for a long time will be able to prioritize and pay less interest.

We also created a system for pension funds to be used as collateral – and this is a very good guarantee, as it is practically money for the lender.

There is no reason not to do the same with all assets in the financial system. Perhaps thinking more boldly, the Pix flow itself can be an extraordinary guarantee for financing micro and small businesses.

Credit card receivables work very well as collateral. Imagine if we create a system based on the Pix itself as collateral?

So there is still a lot to do in this area of credit costs, a very full agenda for the next two years. For the future, the path is to improve guarantees.

Our goal is to cut the spread in half for personal credit, something that would bring a substantial gain for economic growth.

We are seeing a paradox of record requests for judicial recovery in a period when the economy is growing well. Why is this happening and what are the expected effects with the reform currently in Congress?

The number of bankruptcy filings is concerning. We hear many complaints that companies often do not need judicial protection.

There is not an adequate filter for bankruptcy filings. It is up to the judge to assess if it is really necessary.

But perhaps what concerns me the most is the easing of guarantees, especially receivables. Without this asset, the creditor protection disappears.

Correcting some distortions does not necessarily depend on legislative reform; they are misunderstandings in jurisprudence that I consider incorrect.

Furthermore, we need to reform the bankruptcy institute.

What happens now? Creditors have to agree to the bankruptcy reorganization plan – and they agree, largely because the alternative, which is bankruptcy, is very bad.

In bankruptcy, they practically recover nothing. The recovery rate in Brazil is 6% of the debt value, and the process lasts an average of 10 years.

We have submitted to Congress a bill that changes this logic a bit. It is important for this bill to be approved.


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