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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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This is exactly what I have been saying again, again and again on my comments on this site.
Your government increased their debts in local currency by a STUNNING 21 % in 2005 ALONE !!!!!!!!!!!
And with the new tax law for foreigners, your debts will even get much higher.
But your government doesnt care. They borrow on YOUR BEHALF not their own behalf.
Therefore paying the world highest interets rates after inflation doesnt bother them either. YOU society will have to bear the debts AND the compounding effects of high rates that must be paid....to lenders !
Actually your government borrowing rate is
around 17.25 %, or 12 % after inflation.
A 12 % rate above inflation is just unheard on this planet, except in Brazil.
Therefore every one should understand that foreign money is flowing into your country, buying mostly a NON risky government debt of 12 %....after inflation , not because they believe in your government decision. That is quite a different explanations that the one your government is telling you.
Now the most bullish scenario, for the time being, is that your SELIC rate will go down to 14.75 % sometimes next year. And the inflation rate is expected to be around 5 %.
That is still 9.75 % above expected inflation rate of 2007.
BUT THE 9.75 % RATE AFTER INFLATION WILL REMAIN..... THE HIGHEST ON THIS PLANET.
GOOD LUCK TO YOU...ON REPAYMNENT TIME !
The bill will not be expensive, but VERY expensive.
And this time, contrary to the past, you will not be able to say it is the fault of the International agencies or developed nations that lent you money at exhorbitant rates, because loans were made in US$.
NOOOO !!!!!!
This time you OFFERED the world highest rates, wether before or after inflation !!!!!!
No way to escape...by putting responsibility on others.
Should your actual and futures government take wrong decisions, foreign money will flow away much faster that it went in, and to keep the balance, your government will have to increase again the rate after inflation, not reduce it.....as you may think !!!!
Disaster is around the corner within the next 2 to 5 years, or even earlier, on the next world sharp economic slowdown or recession !!!
And dont forget either that the numbers in the article saying that your ratio of government foreign debt and the GDP declined from 16.2 % in 2002 to 10.7 % in 2004, was mostly due because your currency
appreciated against the US$.
It was more a currency effect than real debt reduction !
Between 2005 and now, you effectively reduce sligtly your foreign debts with effective repayments, but as explained also,
with a STUNNING increase in local debts of 21 % in 1 year !!!!!
Tighten your seats belts.....brazilian society !