Wilson Vieira, Economist by the Universidade Federal Fluminense (UFF-RJ), Master in Economic History and Ph.D. in Sociology by the University of Campinas (Unicamp). Professor at the Institute of Economics at the Federal University of Rio de Janeiro (IE-UFRJ), and researcher in the Laboratory of Marxist Studies (LEMA/UFRJ) and in the Laboratory of Hegemony and Counter-Hegemony Studies (LEHC/UFRJ).
From what we observed on the economic policy choices of the Brazilian government in face of the pandemic challenge, we now briefly present the measures adopted by the governments of France, the United States, and Argentina. The choice of France is due to it being a neoliberal government, but with a strong state; the United States is the biggest economy in the world and was under the command of Donald Trump, who is explicitly supported by the current Brazilian president; and the analysis of the Argentinian case is due to it being the second biggest country in Latin America, behind only of Brazil, and having a government that is critical to neoliberalism [1].
In France, whose government is neoliberal, and which proposed, before the beginning of the pandemic, to reform the pension system (which generated strong protests and strikes, being the discussions eventually suspended when the new coronavirus entered the country), we observe, in addition to the aid of € 8 billion for the national health system, a turn in favor of state intervention in the economy, with various measures to support its different sectors. In this sense, the measures taken in favor of workers are highlighted, such as the Partial Unemployment Program, in which the government paid up to 4.5 minimum wages per worker (€ 6,927 or R$ 45,926), incurring at a total additional cost of € 24 billion (R$ 159 billion), added to the aid of € 1,500 (R$ 9,945) per month to self-employed workers who had to close their businesses or who lost at least 70% of their income.
We also observe measures in favor of companies, such as: a) liquidity guarantee of € 300 billion (R$ 1.9 trillion) for the granting of bank loans to companies, with the government as guarantor (except for large companies that continue to pay dividends to their shareholders); €7 billion grants via the Solidarity Fund for small businesses with revenues of less than € 1 million (R$ 6.63 million) and which lost more than 50% of their revenue; b) postponement or cancellation (in the case of the most threatened companies) of the collection of taxes and social charges; granting of € 20 billion (R$ 133 billion) in public credits to certain economic actors considered strategic; c) deferral of utility rates (water, gas and electricity) and rents for small companies with revenues of less than € 1 million (R$ 6.6 million) and which lost more than 70% of their income (comprising about € 3 billion, i.e., R$ 19.9 billion); d) allocation of € 1 billion (R$ 6.6 billion) to the Fonds de Développement Économique et Social (FDES) in order to provide loans to fragile companies that are facing economic difficulties; allocation of € 3.8 billion (R$ 25.2 billion) exclusively to startups, comprising financing, tax repayments and guarantees for bank loans; commitment of French banks to the government to postpone for six months, without cost, amortizations and interest on loans already granted in the past to companies, totaling an estimated amount of € 180 billion (R$ 1.2 trillion).
In addition to the above, France benefited from the measures adopted by the European Central Bank, promoting greater monetary loosening and more liquidity to the financial system to support banks in the need to facilitate financing conditions to companies and households, and, also, from those adopted by the European Commission, which announced some legal flexibilities by suspending the tax rules in force in the European Union, giving more budgetary freedom to member countries.
In the United States, we also see far-reaching measures, although less comprehensive when compared to those taken by France, as we demonstrate below.
To provide assistance to families and workers, the following measures were taken: a) financial assistance to families in the amount of US$ 1,200 per adult for those with a declared income of less than US$ 99,000 per year or up to R$ 198,000 for joint statements; b) families of up to four people were able to receive US$ 500 per child under the age of 17 – limited to US$ 3,400, noting that this aid is unrelated to unemployment insurance (with rapid increase in applications) and that such a measure was provided for in the Coronavirus Aid, Relief and Economic Security Act (CARES Act), sanctioned on March 27, 2020, after approval by the U.S. Congress; c) suspension of federal student loan payments (principal plus accumulated debt interest) granted by the Department of Education until September 30, 2020; d) inclusion of freelance workers to the unemployment insurance program, to provide US$ 600 per week for four months.
To support companies, the following measures were taken: a) the creation of the Paycheck Protection Program, allocating small businesses funds to pay up to eight weeks of payroll costs, including benefits, and which can also be used to pay interest on mortgages, rents and utilities, with small business employees as a priority, freeing up to US$ 659 billion for the maintenance of jobs and other expenses; implementation of the Employee Retention Credit, provided for in the CARES Act and intended for companies not benefited by the Paycheck Protection Program and which encourages employers suffering economic difficulties due to COVID-19 to keep their workers on the payroll by providing a credit of 50% of wages paid up to US$ 10,000 in the period from March 13 to December 31, 2020; b) the creation of the Main Street Lending Program, for companies with up to 15,000 employees or annual revenue of US$5 billion, and which provides for a total of US$ 600 billion to loan resources to companies; c) support to small and medium-sized enterprises (SMEs) by the Internal Revenue Service (equivalent to the Internal Revenue Service of Brazil) through the issuance of tax credits to relieve the cash flow of companies affected by the crisis in order to assist in their costs of sick and family leave of employees, and the deferral of payroll tax, that is, the possibility of microentrepreneurs and employers to postpone the payment of social security tax to employees by up to two years, and the first half must be paid by December 31, 2021.
To ensure the stability of the financial system, the Fed acted through the following measures: a) resumption of Quantitative Easing (QE), according to the LEI study (2020, p. 15): a “(…) widely used program for asset acquisition, increased liquidity and ‘cleanup’ of the balance sheets of companies with financial difficulties after the 2008 crisis. Initially, the value for these transactions would be $500 billion for mortgage-backed assets or government bonds. However, after the global panic in financial markets – represented by the 23.2% drop in the Dow Jones index in the first quarter of 2020 – the Federal Reserve has committed to acquiring as much as is necessary to prevent a collapse in financial markets” [italics by the study authors]; b) reduction of the basic interest rate (Fed funds rate) to the levels of 0 to 0.25% p.a.; c) increase in reverse repo operations (operations designed to ensure the maintenance of a level of liquidity in order to avoid the paralysis of financial markets) to a value of US$ 2 trillion, contributing to the increase in liquidity in the banking system
In Latin America, we highlight the case of Argentina, which is opposite to that of Brazil, presenting very comprehensive measures to fight COVID-19 and to protect the economy, which can be divided into two large groups: measures aimed at social protection and the guarantee of employment and income and measures aimed at supporting companies and the stability of the financial system.
Regarding measures in favor of social and health protection and for the guarantee of employment and income, we can observe in the health sector the reduction of taxes, investments in equipment and expansion of beds, and bonuses of $ 20,000 (R$ 1,480) in four monthly installments to professionals in the sector. In relation to housing, it was ordered the suspension of eviction orders due to default on paying rents, in addition to freezing the value of leases from March to September and interest rates on real estate loans also until September. For the consumers, it has been ordered, in general, to freeze mobile phone charges, internet, and paid TV [2], in addition to the regulation of future increases since August 2020. For workers, dismissal without just cause or by cutting costs and absences was prohibited (in April, lasting for 60 days), and it was instituted the Ingreso Familiar de Emergencia (IFE) in the age group between 18 and 65 years for those who were without income due to the interruption of their economic activities, allocating to them a one-time portion of $10,000 ($740) for each, $3,000 ($222) bonus for retirees and pensioners who received a minimum wage, and for those receiving less than $18,892 ($1,398) the remaining amount to reach the maximum of $3,000 ($222) was allocated. Finally, prices were set for essential products such as food, toiletries, and medicines, initially for thirty days (extended afterward).
Also in the assistance of workers, it is worth mentioning the Programa de Asistencia de Emergencia al Trabajo y la Producción (ATP), created in April 2020, which raised unemployment insurance [from $ 6,000 (R$ 444) to $ 10,000 (R$ 740)] and established, initially, wage compensation (especially for workers of small and medium-sized enterprises) in the maximum amount of 1 minimum wage ($ 16,875 or R$ 1,248), soon increased to the equivalent of 50% of the net salary for the month of February 2020 (and which could not be less than one minimum wage or more than two minimum wages, or the total net salary of that month). The program also granted zero interest rate credit, with a state guarantee, for self-employed and “monotributistas” – a position similar to that of the individual microentrepreneur (MEI) in Brazil [3].
To support businesses and ensure the stability of the financial system, the government, also in the ATP, approved the postponement or reduction of up to 95% of the payment of employer contributions to the Sistema Integrado Previsional Argentino, conditioned to the promotion of the Procedimiento Preventivo de Crisis de Empresas, that is, the negotiation process between trade unions, companies, and the State, with the aim of reducing suspensions of employment contracts and dismissals, or, in case these are inevitable, of reducing their impact on workers. Besides the ATP, the government became responsible for 50% of the net salary of all workers of companies in selected sectors, up to the maximum value of 2 minimum wages, and determined the enlargement of access to credit to various sectors, such as food production and basic materials, by reducing the compulsory reserve requirements of banks that made credit available to SMEs, and created a new line of credit for SMEs [4] through the Central Bank of the Argentine Republic on May 16, 2020, providing a total of $ 217 billion (R$ 16 billion) for 111,621 companies.
It is also worth mentioning in this process the suspension of external debt payments until 2021 and the abandonment of Mercosur’s ongoing and future negotiations.
From what we have set out above and in the previous text, we can observe a greater scope and articulation of measures to combat COVD-19 in France, the United States, and Argentina in relation to those taken in Brazil.
In Brazil, the outlook is for the GDP to fall by 5% by 2020 [5] and, in our assessment, the continuation of the economic recession. In terms of COVID-19, unfortunately, Brazil ranks second in number of deaths and third in number of cases [6].
In France, there is a prospect of GDP decline by 8.7%, with a recovery in 2021 [7], fast or slow, depending on the consequences of the pandemic, since in Europe there is currently a second wave of the spread of contagion [8]. It is worth remembering the robustness of the French economy and the strong presence of the state (even in a neoliberal government), factors that explain its articulated measures to combat COVID-19 and to safeguard the economy, in addition to the possibility of a resumption of GDP growth more quickly.
In the United States, we observed less coverage of measures to protect the economy and great disorganization at the federal level to combat COVID-19, which reflected in the fact that it became the country with the highest number of deaths and cases in the world until November 29, 2020 [9]. In economic terms, there was a big drop in GDP, of 32.9% in the second quarter of this year [10], with prospects of resuming growth in 2021.
In Argentina, as the result of an articulated policy to combat the new coronavirus (contrary to what we observed in the United States and in Brazil), we noted much lower numbers of cases and deaths by COVID-19 until October 11, 2020 [11]. Economically, there was a drop in GDP of 19.1% in the second quarter of this year [12] and a retreat in decline is projected, of 11.8% in 2020 [13].
We can see, therefore, that, regardless of the prospects for recovery or not of GDP, the measures taken by the governments of France and Argentina sought more effectively to protect companies and workers to enable a faster recovery of economic activity. In the United States, the coverage was smaller; nevertheless, much more effective than in Brazil.
It is important, however, to make the caveat that despite the prospects for GDP recovery of the analyzed countries [14], the scenario is still very uncertain, even with the beginning of the availability of vaccines, because we are still experiencing a second wave of contagion in Europe and the USA, with its possible occurrence in other parts of the world.
In other words, the “unviability” of adopting comprehensive Keynesian economic policy measures does not actually exist; rather it is an option, as we have seen in the countries we analyzed.
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*We used the exchange rates from October 1st, 2020 for the foreign currency, that is € 1.00 = R$ 6.63; US$ 1.00 = R$ 5.46; peso argentino: $ 1.00 = R$ 0.0074
[1] The following paragraphs are largely based on study 01/2020 of the Laboratory of International Economics (LEI): Economic Policy in Pandemic Times: Selected International Experiences, published on May 15th, 2020, unless it is quoted or other explicitly stated. The LEI is a member of the Center for International Economic Relations Studies of the Institute of Economics of Unicamp.
[3] Such measures remain in force (after successive extensions), as can be seen in https://www.argentina.gob.ar/coronavirus/medidas-gobierno.
[4] http://www.bcra.gov.ar/noticias/Coronavirus-BCRA-linea-especial-mipyme.asp
[6] https://coronavirus.jhu.edu/map.html
[7] https://publications.banque-france.fr/projections-macroeconomiques-septembre-2020
[9] https://coronavirus.jhu.edu/map.html