MARGOLIS: Who is harder to work for, George Soros or Brazil? FRAGA: Oh, Brazil. No contest. Working for George was terrific. He’s a very objective, no-nonsense sort of person. You knew what the rules were. It was a high-pressure environment and a challenge. But nothing like what we do here, where decisions effect hundreds, millions of people.
You were earning a lot of money working for Soros. Why did you come back to Brazil? My wife, Lucyna, and I had been in the United States for six years. Our kids were teenagers. And we decided it was time.
Did you have something quieter in mind? Definitely. I thought about starting something of my own and teaching part time. Then Brazil’s economy got into a bit of turbulence, they offered me the Central Bank job and I took it, almost on the spot. The kids were in the middle of the schoolyear. But they backed me up, and here I am now.
Letting Brazil’s currency float on the market was a big cultural change. Absolutely. It was a real change in mind-set. People used to borrow in foreign currency, in dollars, to finance local businesses. [Because the real was pegged to the dollar] people didn’t see the risk. There was the illusion of security. That wasn’t healthy. Many countries got into trouble because of this in the ’90s. The market is pretty cruel to those who have these sorts of illusions. So that’s why it’s important to have a clear macroeconomic regime. People know what the risks are.
How do you read the Bush administration’s position on Latin America? On trade, we’re very hopeful that the Bush administration will work hard to promote a freer world. This is very important for countries like Brazil. We haven’t seen much movement in this direction recently. I’m hopeful [Bush’s team] will take the lead and practice what they preach.
What do you make of the anti-globalization demonstrations? I must say I’ve been somewhat puzzled by all of this. We represent a democratically elected government with progressive social views. We’ve practiced what we’ve preached, with all the work we’ve done on education, health, land reform. I get frustrated with this extreme view of things that won’t allow our government to fight for what is good for our people. Don’t get me wrong. I think we need to discuss all these issues openly and look after the environment and children. But it’s amazing when these sorts of movements get mixed up with [causes] that are quite frankly protectionist. That works against us and against the interests of the developing world.
You’ve often said that Brazil is not like other emerging markets in crisis. Then why is the real falling so dramatically? We’ve been dealing with large shocks, all occurring simultaneously, including our own energy crisis, the global slowdown, the situation in Argentina and our own political problems. If these had hit us all at once a few years ago, we would have been in deep recession. As it turns out, we are experiencing a slowdown, and the currency has weakened, but that’s what a floating currency is supposed to do in these sorts of circumstances. The structural changes we’ve put in place will allow us to get back on track.
When you were a fund manager, crises were opportunities. What’s it like on the other side of the table? As an investor, if you position yourself well and are flexible, you can try to buy low and sell high. As a policymaker, you are always looking long, and you have to make the best of it. [That’s] because the downside is shared by so many people. So there’s a huge responsibility in making sure things get done in a way to minimize the damage amid all these shocks. To the Chinese, the word for “crisis” also means opportunity. And that applies to public policy as well. A crisis can be an opportunity to do things better.
