Economy & Energy
No 25 - April - May 2001 ISSN 1518-2932

Apoio::         

BUSCA

CORREIO

DADOS ECONÔMICOS

DOWNLOAD

e&e ANTERIORES

e&e No 25

Main Page

Emission Parameters of Heavy Vehicles

Evaluation of heavy Vehicles Emissions

Light Vehicles Emissions

Evolution of the Brazilian Public Debt 

Application of the Emission Matrix Coefficients

e&e links
Guest book

http://ecen.com

Evolution of the Brazilian Public Debt 

Aumara Feu 
aumara@ecen.com

Carlos Feu Alvim

feu@ecen.com

The Brazilian internal indebtedness reached levels never seen before in our history, 55% of the GDP, corresponding to tax collection of almost two years at all levels of the public administration. Figure 1 shows that the indebtedness imputed in the fifties to President Juscelino Kubtschek’s 5-year administration (1956-1961) can hardly be seen in the graphic’s scale. Actually, public debt bonds were not a current instrument of governmental financing. The JK administration has preferred the mechanisms of currency emission and indebtedness to the Banco do Brasil. The external debt was reduced in absolute value and the commercial balance presented a surplus in practically the whole period. The average inflation was 22.5% annually and in 1961 reached 35% annually.

Figure 1: Public Debt/GDP

The Military Regime, started in 1964, found the internal debt practically “zeroed”. What may seem a sign of financial equilibrium could actually reflect a practical impossibility of indebtedness in what concerns the market at that time.

As an optimistic interpretation, we could presume that at the present situation the National Treasury has never before been so worthy of credit. The pessimistic interpretation would be that we might be very close to a collapse. Resuming our brief (and incomplete) historical summary of the debt, we should remember that the monetary correction mechanisms introduced and the return of external credit allowed the post-1964 Government to resort to the emission of internal bonds and external loans in order to balance the public accounts. An indebtedness cycle was started, raising considerably the Public Debt value. The post-war plateau of the federal debt (7% of the GDP) was exceeded. However, the internal debt was maintained below 8% of the GDP until 1979.

As in that “economic miracle”  period, mostly commanded by the Minister Delfim Neto, the denominator of the public debt/GDP ratio was growing, it was possible to raise the absolute value of the numerator (debt) without an explosive growth of this ratio. The first explosive cycle of the debt occurred due to the superposing of the second petroleum price “shock” (1979) and the interests “shock” of 1982.

The governmental policy of generating balances of goods and services by means of devaluating the national currency brought to great difficulties those who had debts in foreign currencies. This process generated a kind of debt socialization where, in one hand, the government companies capitalized their debts or received contributions from the Government, while the private companies obtained governmental help in order to ease the exchange correction and by so doing the government also took on part of their debt. Furthermore, the concession of exportation subsidies worsened the governmental deficit, resulting in debt growth until reaching the plateau of 30% of the GDP around 1986.

It should be emphasized that the rigid exchange policy did not offer many alternatives to the local financial capital and the Government managed to pay practically zero accumulated real interests between 1980 and 1985. In this period, the Figueiredo Administration, which we could call the second Delfimage, the federal bonds and the savings accounts were almost the only way of protection against inflation. This explains the practices of  negative real interests until 1984.

From 1986 on, in order to get the same result (zero accumulated interests), it was necessary to alternate positive real interests using stabilization plans (Cruzado, Bresser, Summer, Collor 1 and 2) that embedded confiscation of the last months’ inflation. As part of the debt was not corrected, a non-accounted for liability was generated whose delayed effect (correction of the Mandatory Fund for Unemployment Benefit – FGTS) is now felt. In those circumstances the limit of 30% of the GDP became a magic number and whenever it was reached it was necessary to put a plan into operation and its respective confiscation.

From 1991 on ( Marcilio Marques Moreira as Minister of Finance) the real interests became significant and systematically positive, at the occasion of the Real Plan, and reached the accumulated value of 140%. The free exchange regime, favored by the retention of liabilities at the beginning of the Collor Administration, had favored the incoming of external capital that demanded attractive remuneration. From 1991 on it was possible to accumulate a reserve stock that was abated from the net external debt.

After a growth period in 1988, the internal debt/GDP ratio decreased reaching 14% of the GDP in 1994. However with the Real Plan in this same year, 1994, the debt began to grow in an accelerated pace reaching 51.6% of the Gross Domestic Product in April 1999. The partial recovery of the Real relative to the dollar  caused the decrease of the debt relative to the GDP in 1999. Nevertheless, in the last year, 2000,  the internal debt/GDP ratio increased, reaching 55,5% of the GDP in October 2000. This scenario was in part a result of the drop of the international reserves that reached its lowest level since the implementation of the Real Plan (4.2% of the GDP).

In the graphic of Figure 2, the evolution of the Internal Debt ( in US$ billion) shows that the retention of assets favored a considerable reduction of the internal debt in the Collor Administration. This reduction was concentrated in the Federal Government’s debt which even became negative. The government’s companies had also their debt reduced but not those of the States and Municipalities. The practice of positive real interests and channeling the reserves to public bonds multiplied the public debt by a factor of 10 (1000% in 8 years). In January 1999 the devaluation of the Real reduced its nominal value in dollars. 

Figure 2: Total Public Debt, Federal, State and Municipalities and government companies.

The absolute value graphics in Figure 2 (in current US dollars) and those of Figure 1 (relative to the GDP) reflect the growth of the debt which, in relative terms (Figure1), is softened in periods of growth. The comparison between the two graphics seem yet to involve contradictions that can only be cleared out by following the exchange evolution which accumulates differences between their nominal values and those that would be expected when the Brazilian and the American inflation are abated (see previous article by Aumara Feu in the e&e periodical). In particular, the value in dollars grew regularly between 1991 and 1995. The great move regarding the exchange after the Real Plan increased nominally the GDP value in dollars, reducing the relative value of the debt. The real growth of the GDP affects this ratio as well. For example, in 1999 and 2000 economic stagnation was added to mini-devaluation of the Real, which caused  the large growth of the dollar debt/GDP ratio (the denominator did not grow while the numerator did grow). This was followed by a slight recovery of the Real (the denominator - GDP expressed in dollar grew more than the numerator – the debt) This explains the two more recent peaks in Figure 1 

Figure 3a

In the graphic of Figure 3 one can observe the evolution of the internal and external debt in their net values.

From 1991 on , a process of substituting the external debt by the internal one was started. The international reserves, in one hand, did not result in  commercial and services balance surpluses. On the opposite, the transfer of goods and services became negative from 1995 on.

The net external debt was reduced by the accumulation of reserves. These reserves were applied on public bonds, generating a remuneration much higher than that obtained from reserves in foreign banks when they were converted to dollars. As the government did not generate sufficient surpluses to pay the interests, the internal debt increase was much higher than the external debt reduction.

Therefore, it can be verified that the globalization policy, started in the Collor administration and reinforced in the Cardoso administration, that based its stabilization plan on the exchange anchor and on the volume of available capital in the form of reserves, was conditioned to offer attractive interests, which contributed to the increase of the net internal debt.

The commitments – formal or informal – taken on by the government concerning a certain parity with the dollar makes part of the internal debt external as well. This situation is aggravated when the external capital flow, after the Russian crisis (July 1998) and the consequent loss of reliability concerning the Brazilian market, becomes negative. In this case, when the government cannot meet the internal commitments, it reverts the debt substitution process by decreasing the internal debt together with the increase of the external debt.

The decrease observed in 1999 is due to the exchange devaluation together with the decrease of the nominal GDP in dollars. In 2000, the total debt returns to the previous plateau of 300 billion  American dollars.

Figure 3b:A time scale change, expanded after 1994, permits to better follow the post-Real period

The changes in the reserve values shown in Figure 4, substantially increased in absolute value after 1994 permit to understand the variations in the net external debt. Drawing an imaginary line at the 100 billion dollars level in Figure 3b it seems that the total debt is the “reflected image” as well as the amplified one of the external debt, between 1994 and 1998. A decrease in the external curve corresponds to an amplified increase in the total one. It should be noted  that the simple substitution would correspond to a constant value of the total debt. With the change of parity after 1998, the “specular” behavior disappears. The external public debt not only did not end, as stated the then president of the Central Bank (Gustavo Franco) in 1998 but it rather increased rapidly, even though it did not exceed the values of 1990. Nevertheless, it should be remembered that at the beginning of 2001 more than 20% of the public internal debt is already index-linked to exchange bonds and, therefore, linked to the dollar as the external debt.

Figure 4: Brazilian international reserves from 1967 on in absolute values relative to the GDP