Since March, professors at the Getúlio Vargas Foundation (FGV) have been studying Brazil’s initial proposal to transform part of its foreign debt into investments in education.
The faculty members are acting as informal consultants to the Ministry of Education, which intends to submit a debt conversion proposal to the Spanish government at a meeting in Madrid, May 10-11, between Ministers of Latin American countries and the Spanish government.
Brazil’s total foreign debt currently amounts to approximately US$ 210 billion (545 billion reais).
The FGV must define which of Brazil’s debts to Spain should be negotiated. According to Rogério Sobrera, professor of economics and finance at the FGV and coordinator of the project, the debt selected for the Brazilian conversion proposal should be on the order of US$ 1-2 billion.
After the debt is defined, two items will be negotiated: the amount of debt that will be discounted and the amortization rate that will be applied.
“If Spain accepts discounting US$ 100 thousand of Brazil’s debt, only a part of this, US$ 70-80 thousand, will be converted into educational investments.”
Moreover, the creditor will also have to approve the project on which the money will be spent.
The proposal is inspired by programs financed by the World Bank and the International Monetary Fund (IMF) to convert the debts of highly indebted, poor countries.
Sobrera underlines, however, the differences in the case of Brazil. “We are not talking about a deal between friends. The creditor gains indirectly, because, as the country establishes more favorable development conditions, it should become a better partner for the creditor.”
The debt to Spain was picked for a variety of reasons, the most prominent being the greater ease in renegotiating debts with a single interlocutor – instead of dealing with various multilateral bodies – and the fact that Spain displayed its willingness to enter into this type of negotiation when it converted part of Argentina’s debt.
On April 27 the National Confederation of School Workers (CNTE) and other similar organizations will hold a demonstration in Brasília in favor of this type of foreign debt conversion.
Translation: David Silberstein