For IMF, Brazil’s 51.5% Debt/GDP Ratio is Too High

    The ratio between Brazil’s debt and its Gross Domestic Product (GDP), the total wealth produced by the country, is "very high," according to the the deputy managing director of the IMF.

    International Monetary Fund director Anne Krueger, who is in Brazil for the first time in two years, paid a visit to the Brazilian Ministry of Finance, where she gave an interview.

    The country’s debt/GDP ratio currently stands at 51.5%. This means that more than half of what the nation produces would be necessary to repay what the government owes.

    Krueger said that one way to solve this problem is for the federal government to continue its fiscal adjustment policy.

    She also defended the primary surplus, that is, government spending cuts to cover interest payments on the debt. Krueger believes that, in the long run, this policy will reduce the country’s debt.

    According to her, the countries with the best growth in the past ten years are the ones that achieved substantial reductions in their debt/GDP ratios.



    • Show Comments (4)

    • Guest

      free market for money yes !
      But up to a point only. Because when there is no longer a market you go to the IMF as the free market has no longer confidence in you.
      Whatever way you look at it, when a government borrows money even domestically at around 12 % above the inflation rate, that is a loss to the government when interests payments are due. You are the only country in the world doing that. Are you saying that you are the smartest and best managed country in the world ? Smile.
      Just look at your recent past. You borrow in foreign currencies, then you say you should not repay loans. You say the lenders have been unfair to you !
      How can anyone been unfair when they made loans on your request and at an agreed rate ?
      Borrowing in foreign currencies is very risky. You owe more of your own currency when your currency declines and owe less when your currency appreciate. Should governments take this type of risks ? The answer is no, in my opinion. Look at the damage it created in your country in the last 2 or 3 decades, in view of the many and hard currrency devaluations you had. Most of the times you owed much more in local currency at the time of capital repayments or refinancing time.

      As to you word “fiscally” yes you are right because you had no other way. The results being deep cuts in spending. They are the reasons why your roads, highways, rails, healthcare, hospitals, education, poverty and even hungers are in such a bad shape. Not enough investments could/can be done because of the rates of interests at which you borrow, after inflation.
      Using your own numbers, if your rates would be normal, let say 3 % above inflation, your government would borrow at around 9 %. But by borrowing at 18 % in local currency there are many many many billions of Reais (9 % for the premium rate ) that are spent on repayments instead of being spent in housing, infrastructure, social programs.
      Brazil having a government costing 65 % of all revenues, there remains only 35 % for the spendings. With normal intererst rates (9 % below actual rates) you ratio would become 55/45.
      Therefore your available free spending could go from 35 to 45 %, an increase of 28 %. NOT BAD.
      But that money now is paid to investors instead of being spent in the economy that would generate new jobs, these new jobs would also create new taxes and so on.
      The way you do things is similar to a reverse snowball.
      Or simply stated, an AUTOGOAL.

      Finally when small corporations must do borrowings at 40 % or so and consumers must borrow at between 60 to 150 % per year, sorry, but this is not healthy to the economy when inflation is at around 6 %. No business plan can last very long in such environements. You cannot be competitive worldwide in industrial goods with such rates. This explains why your country is so afraid to negotiate free trade. You prefer free trade only in agriculture, obviously, because your agribusiness and farmers are also heavily subsidized with low rates loans of between 6 to 10 % from the BNDES and through various government agencies.

    • Guest

      Hang on.?????..I am confused. I cant quite see the point of your statement other than to state the obvious…but to put it in to realtime….
      ..There is a market for money like any other and a risk associated with getting it. Therefor Brasil has borrowings in whatever currency Probably US$(that would translate to reais relative to the exchange rate). Then service these loans according to the competitive interest rate and risk associated to lending the money to brasil. With regard to paying the interst and principle the government (central bank) then suck it out of the economy through taxes and selling money into brasil at a higher interest rate!!!
      so if Brasil has a GDP of say $700Bn your debt is about $350bn (50%). Then at 6% brasil needs to find $18bn in interst per year.
      Countries that reduce the DEBT/GDP ratio generally are investing into the economy putting equity into plant and human stock rather than waiting for Time to erode the value of the debt they need to service. The point resulting in a greater acceleration GDP growth thus reducing the debt/GDP ratio more rapidly.

      The point (before i loose it) is that there are two sides to solving or balancing the equation…Reduce debt by paying it off…or reducing debt by increasing the GDP.
      What i am seeing is that Brasil is trying to do it more one way than the other..i.e Fiscally

    • Guest

      “If Brazil has a debt/GDP ratio of 50 % and 6 % inflation but borrows at 18 %, it costs
      6 % of the GDP after inflation for interests payments.
      TWICE AS MUCH. ”

      I had a question: I thought the borrowing costs in this situatin would be 12 % of the GDP and not 6%….can you explain

    • Guest

      but if someone like the Brazilian government decide to put interest rates at 16 to 19 % when inflation is only around 6 or 7 % %, They must over borrow by 10 to 13 % .
      Knowing that every country borrow more and more year after year even after inflation, Brazil debts increase by around 25 % or so annually. Increasing debts at such a fast speed cannot last very long without having a major problem sooner rather than later !
      And Brazil do that during an economic boom. What will happen on the next economic slowdown or worse in the nest recession. Debts will increase at even a faster speed resulting in inflation, unemployment, currency devaluation as more borrowing will have again to be made in foreign currency as you did in the past. Things you know better than anybody else, during the early 90’s.
      Even worse, EVERY country that borrows heavily in foreign currencies, one way or the other, has a major problem.
      NO government in developped nations borrow in foreign currencies.
      And with all due respect to Mrs Krueger, most developed nations have a higher ratio of debt to GDP. The problem is elsewhere.

      If a country has a debt/GDP ratio of even 100 % and 2 % inflation but borrows at let say 5 %, it costs 3 % of the GDP after inflation for interests payments..

      If Brazil has a debt/GDP ratio of 50 % and 6 % inflation but borrows at 18 %, it costs
      6 % of the GDP after inflation for interests payments.

      THE AMOUNT of money owned is only secondary knowing that governments in 99 % of the time never reduce the total debts owned but increase them consisently year after year !

      Therefore the rate of growth of the debts and the rate of interests after inflation are far more important than just the percentage of debt/GDP ratio.

      Having the world highest interet rates after inflation and a fast speed in new debt growth does not put Brazil in good shape.
      Your debt/GDP ratio PRINCIPALLY skyrocketed first up during the 1980’s and 90’s because of your multiple currency devaluations and foreign currency borrowings AND LATER CAME down in the last three years PRINCIPALLY because of your currency revaluation !

      If yuu had a much better tax collection, interests rates would not need to be that high as the government would have more money for the necessary spending.
      Also with a better tax collection, more could be done for education, healthcare, infrastructure and with a lower borrowing cost you could reduce your very high taxes by stimulating investments in the economy that will provide new jobs. A reduction in interest rates AND tax rates will provide, curiously enough, more inestments, more jobs, more profits AND more money to the government.


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