Federal Government Uses Brazilian Development Bank to Keep Debt Under Control

02/14/2018 - 10h35

The federal government has been borrowing money in order to pay off ordinary expenditures, such as the payroll of civilian and military servants and social security pensions.

Such maneuvers are prohibited by the so-called 'golden rule', which forbids the government from borrowing money in order to pay off ordinary expenditures.

The norm stipulates that money borrowed from the financial market must be used either for investments or for managing the public deficit.

The only reason the government isn't violating the golden rule is that, from 2016 onward, the federal government has been using funds from the Brazilian Development Bank (BNDES) in order to make up for the money being borrowed to pay for recurring expenditures – the government borrowed R$ 100 billion in 2016 (US$ 30.4 billion), R$ 50 billion (US$ 15.2 billion) in 2017 and is expected to borrow another R$ 130 billion (US$ 39.5 billion) in 2018.

A survey carried out by Folha into federal expenditures revealed that, in 2016, the government turned to the financial market to cover social security pensions through debt issues.

The data, which the government started compiling from 2000 onward, demonstrates that 2016 was the first time that money was borrowed in order to pay social security pensions.

The government reached this low point after several years of high budget deficits, beginning in 2011. In other words, the government's expenses are greater than its revenues and that the government needs to borrow money in order to cover the difference.

Failing to comply with the golden rule means that administrators, ministers and even the president may be held accountable. In the latter case, impeachment proceedings may ultimately ensue.

Translated by THOMAS MATHEWSON

Read the article in the original language

	Nacho Doce/Reuters
	A man walks past the logo of Brazilian Development Bank (BNDES) at the entrance of its headquarters in Rio de Janeiro