Brazilian president unveils draft law to increase central bank independence

Brazil’s president Jair Bolsonaro signed a draft law on April 11 that, if approved by parliament, would reinforce the independence of the Central Bank of Brazil.

The draft law still needs to obtain the support of both houses of Brazil’s legislature, the chamber of deputies and the senate, before passing.

The reform would give the central bank complete autonomy to set the monetary policy framework, and specific policy targets, as well as to implement the measures it thinks necessary to accomplish them.

Central bank independence “is a very important tool, used by the major nations of the world to give confidence and tranquillity to the economy”, said Bolsonaro’s chief of staff Onyx Lorenzoni in a press conference. Lorenzoni stressed “it is in the country’s interest to have a guardian of the currency and the economy, which protects them regardless of the government in power”.

The draft law establishes the central bank’s president would still be nominated by the government, but the final appointment would require parliamentary approval. The project sets the president’s term at four years, which could be renewed only once.

Currently, the head of state appoints the central bank president for an undefined period of time, and can also dismiss him or her at any point. Bolsonaro’s bill requires the Senate’s authorisation to remove the central bank governor before his term is due to end. Boards members would be selected and appointed following the same procedure.

“The goal is to improve the arrangement of monetary policy so that it relies less on people and more on rules,” said central bank president Roberto Campos Neto during his confirmation hearing in the Senate in February. The reform “will be in line with modern literature on the subject and the best international peers. The amendment, if approved, will bring gains for the credibility of the institution and for the power of monetary policy,” added Campos Neto.

Challenging legislative approval

The project will enter parliament through the lower house. There it will be analysed and debated by the economics committee, and later put to a vote on the chamber. There it will need the support of more than half of deputies.

If it succeeds, the Senate will review the bill. Senators could modify the project and send it back to the Chamber of Deputies or directly vote on it. If more than 50% of senators support it, Bolsonaro will be able to sign it into law.

This process could be challenging. The president’s social liberal party (PSL) has a relatively modest representation in Brazil’s highly fragmented legislature. The PSL has 55 deputies out of 513, and four senators out of 81.

However, the government is also supported by a wider coalition including 13 other parties in the Chamber of Deputies and nine in the Senate. They support the president without necessarily voting for all the government’s draft laws.

The parties in this wider coalition have 348 deputies and 58 senators which should theoretically suffice to pass the draft central bank law.

Nonetheless, parliament has discussed numerous other projects to increase the independence of the Central Bank of Brazil over the past decades without success.

Since 1991, the Senate has analysed and voted on nine other draft laws. All of them intended to increase the independence of the central bank and establish fixed terms for the president. But parliamentarians failed to support any of them.