IMF Points to High Public Debt and Bottlenecks in Brazil's Infrastructure

10/09/2013 - 09h15

The International Monetary Fund has taken a polite tone today to address the disappointing growth prospects of the Brazilian economy, but spread the reasons for this over 249 pages of a document on the global landscape.

These are the arguments: growing deficit in goods and services trades with the rest of the world, the difficulty of investing in infrastructure, inflation above target demanding more interest rat to curb consumption and to the contrary to what the Brazilian government preaches, a high public debt.
The exotic accounting maneuvers practiced by the National Treasury in the last four years are also looked at by the Monetary Fund. Next to Venezuela and China, Brazil is cited among the economies where there are "growing risks to the budget and debt due to quasi-fiscal activities."

This means that spending is decided by the government, but this does not appear in official statistics; a typical case in Brazil is the use of Brazilian Development Bank, BNDES.

Rafael Andrade/Folhapress

Using IMF words: "In Brazil and India, bottlenecks in infrastructure and regulation [private investment] braked supply capacity despite domestic demand still strong."

Everything points to the most peculiar characteristic of the national economy: the weight of government spending, especially in the social area and the tax burden, unparalleled in the emerging world (perhaps only in Argentina, but statistics of the neighboring country are not the most reliable source).

The Union expenses, States and municipalities account for something close to 40% of the GDP, from all income generated in the country and almost all of that money feeds consumption.

Public servants wages, administrative expenses, material purchase and especially social benefits in the areas of social security, social assistance and employee's support totaling 9% of GDP. There is little space left in the budget for investments.

With consumption growing faster than production capacity in the country, domestic prices increase, inflation, purchases of foreign products and deficit in foreign transactions.

Using IMF words: "In Brazil and India, bottlenecks in infrastructure and regulation [private investment] braked supply capacity despite domestic demand still strong."
The government spends more than it collects and accumulates debts that are among the largest in the emerging world. The national accountability shows lower values when discounting from public debt the dollar reserves in the Central Bank, and other more conservative devices, but the IMF paper shows that the tricks do not fool any more.

In the criteria adopted in the country, the net public debt is around 34% of the GDP. In the methodology most common in the world, gross debt should end the year at 67% of the product, almost twice the value.

Except for brief interruptions, Brazil's economy grows below the average for an emerging country since the 80s, due, in large, to the political choice to create the largest social protection medium outside the developed world. The official point of this option is the Constitution that turned 25 last week.

Translated by SIMONE PALMA

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