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Brazil's New Middle Class Seems to Be Trapped by Debts and Payment Deadlines PDF Print E-mail
2012 - June 2012
Written by Gilberto Costa   
Wednesday, 06 June 2012 16:08

Buying appliances in Brazilian store Brazilian economists and sociologists have been warning that the choice by the Brazil government to stimulate growth through consumption may have unintended consequences.

Cláudia Sciré, a sociologist who wrote a book entitled, Popular Consumption, Global Flux, says that for many Brazilians the journey out of poverty that is supposed to be an upward ascension into a new middle class has become a downward slide into a financial dead end.

Sciré points to studies by Marcelo Néri, an economist at the Getúlio Vargas Foundation (FGV), and Ricardo Paes e Barros at the Secretariat for Strategic Affairs housed in the Presidency of the Republic.

"This process deserves a closer look and some questions need to be asked," says Sciré. "Are these people no longer poor? Is access to cultural events and quality education still difficult? Consumption alone is not an adequate parameter," she declares.

Sciré questions the whole idea of whether or not this ascension into the so-called "Classe C" and the resultant indebtedness is sustainable where there has been an increase in income and consumption over the last decade. "We do not really know what is going to happen," she says.

Uncertainty regarding the capacity of indebtedness and the efficiency of consumption as a stimulus also worries Fabio Giambiagi, an economist and one of the authors of Além da Euforia - Riscos no Plano Econômico.

"In spite of falling interest rates, Brazil's interest rates remain much higher than in other countries. The result is that indebtedness in Brazil tends to siphon off a greater part of worker income. The payments Brazilians make on installment plans are just bigger than in most other countries," says Giambiagi.

With respect to the recent decision by the Ministry of Finances to stimulate consumption to boost GDP growth through lower taxes on vehicles, for example, Giambiagi says: "The short-term logic is understandable. But in the medium- and long-term, it would be better to increase private and public sector spending."

Rearrangement

The recent decision by the Brazilian government to stimulate growth through consumption is a repetition of the recipe that was successfully used in 2009.

However, Sciré points out that the resulting increase in consumption in the lower social classes rearranged familial relations. The relationship between husband and wife shifted, as did that between parents and children.

In each case, the latter element in the equation gained more power in decisions on consumption. One of the reasons was the fact that husbands, old consumers, so to speak, had already acquired debts and bad credit records, while wives and children, new consumers, had clean credit records.

Sciré points out that in spite of the positive economic and social effects that access to credit can have, it can have undesirable consequences in the lives of the recently poor.

"Overnight, so to speak, these people have to deal with financial mechanisms that are very complicated even for people accustomed to them. People get confused. Installment payments may be small but the total cost is two or three times what a person makes.

"They get in debt, their lives are overshadowed by payment deadlines. There are grave consequences. They live in a time horizon that stretches only to the next monthly payment."

Fabio Giambiagi, an economist, says growth based on domestic consumption has run into a wall. Domestic growth has slowed and the loss of rhythm is due in part to indebtedness by Brazilian families.

"The big difference in indebtedness in Brazil and elsewhere is the enormous hurdle that home ownership represents. My impression is that further indebtedness is not a good idea," concluded Giambiagi.

Indebtedness

The purchasing power of the lower social classes, known as "classes C and D," also known as the new Brazilian middle class, has not jumped in spite of lower interest rates.

Economists says that the slowdown shows that the expansion of consumption that was to be spearheaded by the new middle class, although not exhausted, has run into a wall: family indebtedness.

This can be seen in Central Bank data on loans and financing operations by the financial system. In March they grew 1.7%. And in April, only 1.2%.

Fabio Gallo, professor at the Getúlio Vargas Foundation and an expert in credit, says that apparently we have reached the end of a cycle that began in 2009 when the government unveiled a stimulus package in the midst of the international financial crisis.

At this moment, says Gallo, the lower interest rates (including the benchmark Selic) and easier access to credit will have limited effects.

"Payment delinquency rates are at a record level (officially at 5.9% in March and April). At the same time, around 25% of the population is deeply in debt. Most of the indebtedness is exactly in the 'Classe C.'

These are people who fudged the math when they bought a car without a down payment that was to paid off in 60 easy monthly installments," says Gallo, adding that it is not just late payments that are the problem. "Even families who are up to date with payments have no way to take on further debt at this time."

Gallo goes on to say that this credit bottleneck does not mean that the growth in the new middle class through a consumption model is outdated. "These measures may have the desired effect on the economy, but it will take time. Income must continue to rise and families have to pay off the debts they have acquired," he concludes.

Newton Marques, a specialist in personal finances at the University of Brasília, also refutes the idea that the model is no longer valid. Economic growth based on Class C and D consumption continues to be possible, he says. "This is a moment of transition. It is a time for families to reorganize before credit moves through a new cycle of growth," says Marques.

As for lower interest rates, Marques says that at the end of the day people will just get further into debt. "At the moment consumers can extend their debt at lower interest rates, debt capacity increases," says Marques. And that is when families in the new middle class must be more careful with their finances, the economist concludes.

ABr


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Comments (22)Add Comment
world economic downturn and the US supremacy
written by a.norlina, June 13, 2012
An open comment to the US secretary of state Hillary Clinton,

Madam,

I have just received the news from the UN that you are extending the period of Kofi Annan peace deal to July 2012 as the dateline for implementation in Syria.... actually I have one question for you...do you truly want to be like my ex-boss who is your dearly friend in my country to be known as MOTHER OF ALL THIEVES? You see because of your friend I find it difficult to find any jobs because each time when I attended any interviews the employers will start to chant "Oh I see you must be like your boss "MOTHER OF ALL THIEVES". They refuse to take me in their organisations and SURPRISINGLY my college in ex-USSR even mention in the report to the local police HQ here in my country that your friend (my ex-boss) manage to buy luxurious condominium and even the Russian President Vladimir Putin can't afford to buy.

So again Mrs. Hillary Clinton do you want to be known in the world history book as "MOTHER OF ALL THIEVES"? If you want to join my ex-boss then be my guest....
...
written by jon, June 14, 2012
Is this news to anyone??
...
written by Joao da Silva, June 14, 2012

Is this news to anyone??


No.but...but...but... nobody listened to JDS when he warned them repeatedly not to get indebted.smilies/sad.gif
...
written by jon, June 15, 2012
Bonjour Joao,

same here in Canada..credit is a dangerous drug
...
written by Nicholas (usa_male), June 18, 2012
What about having debt free money? Good idea or bad idea?
...
written by Simpleton, June 21, 2012
Nicholas, I'm all for that! Terrific idea. Please send me as much as you can as soon as you can. Have to pay off the mortgage as they won't let me refinance at a lower rate.
Jon
written by João da Silva, June 25, 2012

Bonjour Joao,same here in Canada..credit is a dangerous drug


Bonjour to you too, Jon. I apologize for the late reply, because I was in the Yankee land for the past 3 weeks. smilies/sad.gif .My time didn't permit me to visit the Canuckland, though I had to fly over your territory, regretfully, if I might say. smilies/cool.gif

As for your question: "Credit is a dangerous drug", I think young Nickey and ole Simp have countered you with thought provoking questions.smilies/shocked.gif

How is the weather up there in Labrador, Jon?smilies/wink.gif
...
written by João da Silva, June 25, 2012

Nicholas, I'm all for that! Terrific idea.


When in doubt, better consult Ederson & ASP, Inc.smilies/wink.gif

BTW, how is your fragile health Simp?smilies/cool.gif
...
written by asp, June 26, 2012
joao, im on the road also

great you passed through chicago....i hope i never do again, though...no slight to your visits there, i grew up there and left too much blood and guts and tears there

i love miami, i was there as the heat won the championship
...
written by Simpleton, June 27, 2012
Four and half months convalescing in the penthouse suite did me no harm. More walking the surf line, fishing, swiming, etc., would have been nice but the weather and sea weren't exactly cooperating the last two months. Ok though, I occupied my time with another "obligation" needing attending to. That helped out with the physical reconditioning immensely. The run out to the middle of dead nowhere in Minas on all those unpaved roads was timely and interesting, good for the soul, ... It was flooded / impossible to get there the week before the trip and had really rough weather back in Rio while I was away. OMG, even after all that cheese where the heck has my beer belly gone???
...
written by João da Silva, June 27, 2012
To: ASP & SIMP

Thanks for your comments and I do appreciate your quick relies.

great you passed through chicago....i hope i never do again, though...no slight to your visits there, i grew up there and left too much blood and guts and tears there


ASP, I am really sorry that you "left too much blood,guts and tears" in Chicago Land. I am unable to comprehend how you are still alive in spite of losing your "guts and blood". Some good doctor on your Island must have fixed your guts and arrested the blood flow. As for your tears, never mind. Even a strong person like Dick Nixon shed copious tears when he lost his job. smilies/wink.gif

BTW, what road are you on, Route 83?smilies/wink.gif

Simpleton:

Four and half months convalescing in the penthouse suite did me no harm. More walking the surf line, fishing, swiming, etc., would have been nice but the weather and sea weren't exactly cooperating the last two months. Ok though, I occupied my time with another "obligation" needing attending to. That helped out with the physical reconditioning immensely. The run out to the middle of dead nowhere in Minas on all those unpaved roads was timely and interesting, good for the soul, ... It was flooded / impossible to get there the week before the trip and had really rough weather back in Rio while I was away. OMG, even after all that cheese where the heck has my beer belly gone???


Thanks for the report on your health, Simp. It is quite complete and comprehensive, if I may be permitted to say.smilies/wink.gif

To get rid of your belly, you should change the brand. Try "Steel Kettle". It gets ya without expanding your girth.smilies/cool.gif

BTW, have y'all heard from Dr.McCray and Dom.Ederson?

Cheers
nope
written by Simpleton, June 29, 2012
Don't Worry, Be Happy, three little birds tell me asp will return to his hometown soon despite his preference for Maimi. The directive to the local authorities has just changed. As long as he steers clear of Crackolandia he won't Cry No More in jail for his 15g or less.

"Steel Kettle", don't believe I saw that in the supermarket down yonder, how does it compare to "Bang on the Drum All Day" as far as helping to reduce one's girth? Ya gotta work at it.

Did you see the recent Maori documentary? I was suprised to learn their presence in New Zealand started only 800 years ago.
...
written by jon, June 30, 2012
Joao,

You did a flyby? Did you see the scars of the great Albertan oilsands?? Harpy is trying to build pipelines to British Columbia to sell oil to the Chinese since Obama scorned him. How is the oil flowin' out in the pre-salt? Chevron anyone?
Simpleton
written by Jo�o da Silva, June 30, 2012
Did you see the recent Maori documentary? I was suprised to learn their presence in New Zealand started only 800 years ago.


Nope, I didn't see the recent Maori documentary, because I know several Maoris from whom I came to know their history!

Simp, have you read the book "Kon Tiki" written by the famous explorer Thor Heyerdahl (I think he is Norwegian) who built a raft out of papyrus & other basic things and sailed all the way from Peru to Polynesia? His point was to prove that the native Indians from S.America did emigrate to Polynesia & beyond with their rickety boats 800 years ago.

Ah think you should get the book from Barnes & Noble and read it during your spare time. smilies/smiley.gifsmilies/wink.gifsmilies/cheesy.gifsmilies/grin.gif

Cheers & take care
Jon
written by João da Silva, June 30, 2012

You did a flyby


Unfortunately (or fortunately), I did even though the flight plan did not take me over the barren lands of Alberta.smilies/sad.gif It did take me over the great lakes, though.smilies/wink.gif

Harpy is trying to build pipelines to British Columbia to sell oil to the Chinese since Obama scorned him.


Harpy is nuts, probably in cahoots with all the Chinese "business persons" in B.C.smilies/wink.gifsmilies/cheesy.gifsmilies/grin.gif No wonder PBO scorned him.smilies/cool.gif I am not sure about your reading comprehension of Portuguese, but...but...but... we call folks like Harpy "Corretor de Imóveis". smilies/sad.gif

How is the oil flowin' out in the pre-salt? Chevron anyone?


I think Dilma put an end to "Pre-Salt" & Cheveron. Only the time will say.smilies/wink.gif
...
written by Simpleton, July 01, 2012
Yes Joao, there is copy of Kon Tiki in my library. At present I don't recall but I'm pretty sure it was signed by someone if not Heyerdalh himself. Is that how you came to be orphaned in Peru? Your parents sailed away into the sunset to go visit your distant relatives and never came back?

My speculative bet on PBR (against ch.c's stern advice) did not pan out (or not yet) but I would not go so far as to blame Dilma.
aged
written by Simpleton, July 02, 2012
Ya, like you, the last time I read it was more decades ago than I care to remember. I was going to say something about those 800 year old Maoris you know that gave you their first hand account of their history.

The library also includes stuff like Rascal (which is signed by the author) and a copy of nearly every negative utopian book that existed at the time. Of course here of lately I've been choosing to live / see utopia in it's various forms that exist down yonder during my annual migrations. Maybe this will be the year I will commence outlining my own novel although I met a journalista this past trip that would probably rather just use peices and parts of my accumulated experiences and stories to fire off a new tele novela series.

Oh, and I do hope I didn't offend our dear friend asp. I do understand about the crying he did growing up in Chitown. My innuendo regarding it's cause was in jest.
Simpleton
written by João da Silva, July 04, 2012

Why were our two previous comments on ch.c removed?>smilies/sad.gif

Oh, and I do hope I didn't offend our dear friend asp. I do understand about the crying he did growing up in Chitown. My innuendo regarding it's cause was in jest.


I am sure ASP wasn't offended. He is just doing "Cú Doce", by ignoring your comment or crawled back into his cabana with his harem and put a sign "Do Not Disturb" on the door knob.smilies/smiley.gifsmilies/wink.gifsmilies/cheesy.gifsmilies/grin.gif

Cheers
Ya Ya
written by Simpleton, July 05, 2012
No idea why the webmaster would remove your posts. I saw nothing offensive in them. Probably experienced another cyber attack or you got too inebriated again and came down with a case of stumble fingers instead of stinky fingers like asp. As nice as the cobertura was, I'm still a bit ticked he wouldn't loan out the cabana for my "tourist" forays. Ok though, I found a cheap apartment off to the side out of the fray with full access Inet TV to help keep me a bit more comfortable / things segregated.
Simpleton
written by João da Silva, July 05, 2012

No idea why the webmaster would remove your posts. I saw nothing offensive in them


Thanks for your consoling message, Simpleton. You are indeed a formidable ally of mine. As solid as the Plymouth Rock your forefathers (and foremothers, foreuncles, etcsmilies/wink.gif landed on. smilies/smiley.gifsmilies/wink.gifsmilies/cheesy.gif

On a serious note: In your humble and simple opinion, how is the U.S. economy doing? During my travel this year, I found the Yanks to be more optimistic and upbeat than I did a couple of years ago.The Europeans I ran into seem to be quite pessimistic about their "Euro Zone". We Brasilians (the smart ones, I mean) are quite upset on being forced to be commodity exporters.smilies/sad.gif

Never mind ASP.We will expel him from Brasil on trumped up charges, if he doesn't respond to our comments within 90 days.smilies/wink.gifsmilies/grin.gif
penalty and law
written by Simpleton, July 06, 2012
While the US "recovers" (jobless or otherwise), the teeth of the eurozone will grow long and continue to decay. Brasil being "forced" into being nothing more than a comodity exporter - hardly. It's by choice, greed and basic lazyness (Oh, ya gotta love it - there by the will of G__ go I!). The land of the the future exists, whether that be here or there it is just a matter of one's timeline perspective.

Cheese and wine (and or tea and crumpets for you and Eddie), what's wrong with that? Every Friday pm my college math TA held a "study" session with delectables. I see no reason to change a thing or expel anyone for the purposes of altering a future that is of common good for all. Asp obviously does his best to keep his head down low (and gets plenty when it unavoidably pops up), 90 days in the pokey will do him no harm.

Have I been cryptic enough for ya? Try searching Jonas and Ezekial -
In the war over land where the world began - Prophecies say it's where the world will end
Simpleton
written by João da Silva, July 06, 2012

Have I been cryptic enough for ya


Sure, indeed.smilies/cheesy.gif

But....but...but...., Ah suggest we move to the recent articlo at the head of the magazine, unless you insist on lingering around here.smilies/wink.gif

As for your TA, Ah suggest he/she takes some time off to come visit the Foz to see first hand how much water we have!!!!!!!!!!!!!!!!!

Mah customary cheers.smilies/cool.gif

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