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THE UNCONTROLLED IMMINENT OF PUBLIC DEBT IN BRAZIL AND ITS
SERIOUS CONSEQUENCES
Fernando Alcoforado *
In the economic history of Brazil 's post -war to the present time , the dilemma of how
to increase the savings rate for the country to grow economically faster has always been
solved by various governments with the use of foreign savings to the attraction of
foreign direct investment and obtain international financing. This policy is also being
maintained by the government Dilma Rousseff as evidenced by their participation in
The Brazil Infrastructure Opportunity Seminar held yesterday (26/09/2013) in New
York, organized by Grupo Bandeirantes de Comunicações and Metro Newspaper in
partnership with Goldman Sachs, where she has been looking for external capital for
investment in infrastructure in Brazil .
The search for external capital for investment in Brazil is the result of the incompetence
and inability of the federal government to adopt policies that generate public and private
savings needed for investment expansion. It should be noted that the rates of saving and
investment in Brazil from 2000 to 2011 ranged from 14 to 18.5 % of GDP (Gross
Domestic Product) being placed well below what the country needs (25 % of GDP) to
eliminate their existing infrastructure deficits and leverage economic growth of 7 % per
year needed to create the required level of employment for the economically active
population. There has never been a part of the Brazilian government over the recent
history of a true concern nor the formation of public saving , nor with creating
incentives to raise domestic private savings .
At the moment, for Brazil to grow fast, it is essential to increase domestic savings,
especially public investment that is very low (1.09 % of GDP in 2012), without which
the country will raise its level of indebtedness, both internally and externally, to point of
jeopardizing the future of the nation, as is currently happening with Greece, Spain and
Italy in the European Union. To raise levels of savings and investment in the public
sector, it is essential to: 1) expand the fiscal surplus with the drastic reduction in the cost
of government spending, 2) reduce the Selic rate to decrease the growth of public debt
and, 3) reduce dramatically the burden of payment of the debt (interest + amortization)
renegotiating with lenders the increasing of the payment period.
The decrease in the cost of government spending can be started immediately with the
drastic reduction in half of the 39 ministries, many of them useless, and 20,000
commissioned positions existing in Brazil. It is worth noting that for each percentage
point reduction in the Selic rate, the net public debt falls 0.25 % of GDP and,
consequently, interest and amortization charges. The renegotiation with creditors
(domestic and foreign banks, pension funds, etc.) is essential for the federal government
to raise public savings and investments in Brazil's public sector that could grow
significantly.
By adopting this policy, the federal government does not need to act subaltern seeking
to attract foreign capital for investment in infrastructure as it did recently in New York
contributing to further increase of the dependence of Brazil in relation to the exterior.
The increase in public sector savings in Brazil can reach up to 43.98 % of the budget of
the Republic which is the amount that the Treasury spends annually with the payment of
interest and repayment of domestic debt if you happen to renegotiate with creditors.
With the adoption of this measure would create the conditions so that the public sector

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can invest and finance its own resources, and not borrowing as currently occurs. In turn,
to raise private sector savings, it is important to drastically reduce the tax burden in
Brazil (35 % of GDP), the high cost of electricity and the "spread" banking for the
private sector to provide resources for investment.
This whole set of measures described above would help reverse the lack of control of
domestic public debt in Brazil which reached R$ 62 billion during the Cardoso
administration, R$ 687 billion during the Lula government and should reach R$ 2.24
trillion in 2013 to Dilma Rousseff administration. The main factor responsible for the
increase of domestic public debt in Brazil has been the high interest rate Selic adopted
by the Central Bank of the federal government, the largest of in the entire world
economy. The practice adopted by all the government from FHC to Dilma Rousseff has
been characterized by debt refinancing which means renew overdue debts with new
deadlines and interest attractive to lenders , burdening taxpayers and of course throwing
the responsibility for the next government.
The pity is that the federal government will spend in 2013, 43.98 % of the budget on
interest payments and repayments of debt (R$ 985 billion), surpassing the resources
allocated to education (3.34 %), health (4.17 %), national defense (1.72 %) and public
safety (0.19 %), among other items. The states and municipalities, almost bankrupt,
receive transfer of the Union (federal government) only 10.21 %. In other words, the
lion's share of the budget of the Republic is for the payment of interest and repayment
of domestic debt. If there is a reversal of this situation, it will be marked increase in the
imbalance between demand and availability of resources to meet the needs of the
country in economic infrastructure (energy, transport and communications) and social
(education, health, sanitation and housing) to the detriment the population and the
national productive sector.
For the Brazilian government have resources for investment, it´s necessary to adopt the
policy of lengthening the payment of interest and amortization of debt renegotiating
with creditors, ie, with domestic and foreign banks (creditors 55% of debt), mutual
funds (21% of the creditors of debt), pension funds (16 % of the creditors of the public
debt) and non-financial companies (creditors 8% of debt). It is unacceptable to maintain
the current situation in which the financial system appropriates almost half the annual
wealth generated in Brazil, while the federal, state and municipal governments are
unable to meet the most basic needs of its population and the productive sector.
The lack of political will or courage on the part of the federal government to affect the
interests of the financial system, which is making money like never before in Brazil and
the world, is what makes adopt the policy of filling the savings of the country attracting
capital external and performing ppp's (public-private) investment in logistics
infrastructure. The attraction of foreign capital for investment brings the disadvantage of
increasing economic dependence of Brazil in relation to the exterior and the ppp's bring
the inconvenient to transfer to the private sector public services typically in prejudice to
its users as is the case for example, of highway tolls. The pity is that both solutions are
palliative because they do not prevent the increase in public debt.
Facing the serious situation experienced by Brazil in relation to the possibility of lack of
control of public debt that compromises the budget of the Republic against the interests
of the Brazilian people, urges the mobilization of civil society to demand the federal
government for a radical change of policy related with the domestic public debt.
Maintain the current policy means that there is a cause of uncontrollable public debt in

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the coming years, while processing policy changes regarding domestic public debt
means creating possibilities for the construction of economic and social progress in
Brazil in the future.
*Alcoforado, Fernando, engineer and doctor of Territorial Planning and Regional Development from the
University of Barcelona, a university professor and consultant in strategic planning, business planning,
regional planning and planning of energy systems, is the author of Globalização (Editora Nobel, São
Paulo, 1997), De Collor a FHC- O Brasil e a Nova (Des)ordem Mundial (Editora Nobel, São Paulo,
1998), Um Projeto para o Brasil (Editora Nobel, São Paulo, 2000), Os condicionantes do
desenvolvimento do Estado da Bahia (Tese de doutorado. Universidade de Barcelona,
http://www.tesisenred.net/handle/10803/1944, 2003), Globalização e Desenvolvimento (Editora Nobel,
São Paulo, 2006), Bahia- Desenvolvimento do Século XVI ao Século XX e Objetivos Estratégicos na Era
Contemporânea (EGBA, Salvador, 2008), The Necessary Conditions of the Economic and Social
Development-The Case of the State of Bahia (VDM Verlag Dr. Muller Aktiengesellschaft & Co. KG,
Saarbrücken, Germany, 2010), Aquecimento Global e Catástrofe Planetária (P&A Gráfica e Editora,
Salvador, 2010), Amazônia Sustentável- Para o progresso do Brasil e combate ao aquecimento global
(Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2011) and Os Fatores Condicionantes do
Desenvolvimento Econômico e Social (Editora CRV, Curitiba, 2012), among others.