Brazil’s Domestic Debt Is Out of Control, Says Expert

In recent years Brazil’s foreign debt has been falling, while domestic debt has been rising. "When the two tendencies are added up, the proportion of government debt remains more or less the same as it has been in recent years," notes Brazilian economist Reinaldo Gonçalves.

Gonçalves is a professor at the Federal University of Rio de Janeiro (UFRJ) and author of the book "Brazil Indebted." He believes that the best way to measure government indebtedness is the ratio between government debt and the Gross Domestic Product (GDP), the sum of all wealth produced in the country.

This ratio stood at 55% in 2002. In 2004 it was down to 51.8%. Gonçalves judges that the improvement reflects the decline in the exchange rate of the US dollar, thus lowering the value and the weight of the foreign debt.

He cautions that although the ratio between government foreign debt and the GDP declined from 16.2% in 2002 to 10.7% in 2004, the ratio between government domestic debt and the GDP increased from 41.2% to 44.3%.

There is a "two-way movement" on the part of the federal government in dealing with the foreign debt, according to the economist. On the one hand, paying off old debt instruments; on the other, issuing new titles.

Still, it has managed to lower its foreign debt, the professor observes But "the domestic [debt] is out of control," he comments.

ABr

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