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Translator: Emily Ciccarelli
Firstly, is it worth emphasizing what Brazil’s foreign debt is? Well, Brazil’s foreign debt is the sum of the country’s debits, financing and loans made abroad by the federal government, to benefit state-owned or private companies. That is, Brazil’s foreign debt is the sum of all the loans contracted abroad made by the government and this price can heavily impact not only the financial market, but also the functioning of the State. Certain developing countries, for example, even need to allocate half of their domestic income to service their foreign debt, significantly impacting its possibilities for development and putting them into “fiscal traps”.
These loans or financings can come from foreign governments or international financial entities, such as the International Monetary Fund (IMF) or the World Bank. It is worth emphasizing that these commitments are made in foreign currency, with the dollar being the most used, as it is the world’s reference currency for this type of operation.
The foreign debt increases to a greater extent in developing countries, which is the case with Brazil, when compared to developed countries along the last decade. The increase in debt in developing countries was mainly due to the growing financing needs, caused by the Covid-19 pandemic, the international inflationary crisis that generated a peak of increase in life cost,and the climatic changes – this set is also very influential in something known as “Trap of Debt and Fossil Fuels”, in which developing countries are forced, either by creditors’ policies or the need for capital flow, to invest in natural resource extraction industries, what engraves the debt crisis and the climatic crisis, turning everything into a snowball.
Some regions spend more with the foreign debt than with their own population. In Latin America and the Caribbean, the developing countries are led to allocate a greater amount of money to interest payments than to investment in social development, in order to keep their creditors in good standing.
It’s relevant to emphasize that it is not recent that Brazil accumulates foreign debt and it has been a problem for public policies and the State. Its origin goes all the way back to our Independence, but it was during the dictatorship, between the 1960s and 1980s, that the debt took its biggest leap: in the military government the inflation went from 92% per year in 1964 to 242% per year in 1985, the society had no knowledge of the public budget, since a big part of the expenses were financed by the movement account from Banco do Brasil (Brazil’s Bank), an instrument created by the military to cover the expenses of printing money. Before the coup of 1964, Brazil’s foreign debt was 12 billion dollars and by the end of the dictatorship period, it had reached the mark of 100 billion. The debt only started to be stabilized under the governments of Fernando Henrique Cardoso and Lula.
Today, Brazil’s foreign debt is around R$6.2 trillion, with small variations that happen month by month, connected to the dollar’s exchange rate. These data can be consulted through the monthly debt reports made by the national treasure secretariat (STN) and disclosed by collective interviews. Especially in June 2023, the debt had an increase of 2.95%, ending the month with R$6.191 trillion. Despite the increase, the Public National Treasure Debt operations coordinator, Roberto Lobarinhas, said that the month was extremely positive for the markets and debt issues.
Brazil’s foreign debt has been growing in a very elevated way in the last 20 years. Therefore, many economics and government professionals search ways of controlling the debt. There are two main actions that the government can do to control its debt, in other words balance its bills. Those being:
Issuance of government bonds: the government can issue titles of foreign debt, therefore allowing negotiation with foreign banks, governments from other countries and other international institutions in dollars. The most common titles are the “global bonds”, dollar-denominated assets that can be issued in Brazilian reais or in other applicable currencies.
Debt renegotiation: when negotiating a debt with other countries, it is possible to exchange a more “expensive” debt for a “cheaper” and easier one to pay, allowing the government to stabilize its bills and decrease the total amount of debt.
September 7th, 2023
World Social Forum of Health and Social Security Curatorship
USED MATERIAL
https://novo.org.br/explica/por-que-nao-devemos-celebrar-o-golpe-de-1964/
Os trabalhos do FSMSSS são revisados por Isadora Borba e Rafaela Venturella De Negri