Brazilian fiscal policy is eyed with distrust by the IMF and OECD

10/24/2013 - 09h03

Two influential entities in global economic thought have demonstrated some disbelief in the Brazilian indicator that shows a drop in the country's public debt.

In the report released yesterday, the IMF says it has received and refuted arguments from Brazilian authorities under which the continued reduction of debt has allowed a relaxing of the control of spending.

The net government debt - a calculation often used in Brazil, which discounts government credits - has plummeted over the past two years, from the equivalent of 38.2% of the Gross Domestic Product (GDP) to 33.8%.

The IMF, however, was explicit in choosing another thermometer: gross debt - which adds up all the amounts due to the private sector. Over the last two years, this number has increased from 61.8% to 64.2% of GDP.

The International Monetary Fund - as well as the OECD (Organization for Economic Cooperation and Development) - advised the government the day before yesterday to pursue goals that would reduce gross debt.

This concern was nonexistent until the end of the last decade. Both net debt as gross profit were sharply reduced between 2003 and 2010, resulting in a consensus assessment that the government improved its accounts.

What produced the discrepancy between the two indicators was the adoption of successive accounting maneuvers to increase spending without reflections in the official results.

In the main one, the National Treasury began to borrow more and more money to inject into public banks and increase the supply of credit. These operations do not fall into the category of net debt because, theoretically, the money was lent to banks - how and when the loan will be paid is more difficult to say.

The IMF emphasized that control of operations made by public banks should be "a key component of a credible strategy for debt reduction".

The OECD now states that the focus on reducing gross debt would strengthen "the clarity of public accounts."

"Credible" and "clarity" are the key words in the organizations' judgments.