Brazilian public debt: rentiers profit, investments drop, math doesn’t add up

Brazil’s national debt is expected to surpass 87% of the GDP in 2018; where do the people’s resources go?

São Paulo |
Brazilian real bills hung in protest against corruption and money laundering in Brasília
Brazilian real bills hung in protest against corruption and money laundering in Brasília - Marcello Casal Jr/ Agência Brasil

Under the Michel Temer administration, Brazil’s public debt increased by 1.51% in March, surpassing R$3.6 trillion (around US$973 billion), according to official data.

Certain approaches to macro-economic policy suggest that during periods of national debt, governments should consider increasing levels of public investment through financing infrastructure projects and social welfare programs that help generate employment, increase individual spending in order to restimulate the economy. 

However, according to retired auditor of Brazil’s Internal Revenue Service (Receita Federal do Brasil – RFB) and founder of the Brazilian Citizens’ Debt Audit (Auditoria Cidadã da Dívida) Maria Lúcia Fattorelli, in Brazil, national debt has not been used as a mechanism for public investment. Instead, a series of macro-prudential economic policies have been implemented as a tool for rentier interests.

“If we look at 2015, when the crisis deepened, debt stock increased by R$732 billion [US$198 billion]. When you look at the public investment that year, it was below R$10 billion [US$2.7 billion]. What happened to all that money? Payment of interests.” 

In other words, the government has been issuing treasury bonds to pay the interests on government debt rather than selling treasury bonds in order to finance health, education, and infrastructure programs.

Robin Hood in reverse

Pedro Rossi, an economist and professor at the University of Campinas (UNICAMP), says the problem is not the size of the public debt, but the high interest rates paid to creditors. “The Brazilian problem is the interest on public debt, which is really high. It produces a perverse effect, which I call the 'Robin Hood, Brazilian style' effect. They take money from the people to pay interests on the debt.”

Marcio Pochmann, an economist at the Brazilian think tank Perseu Abramo Foundation, echoed similar sentiments stating, “With high interest rates, part of the public budget goes to paying the so-called rentiers. Around 6% of everything the country produces – that is, its GDP [Gross Domestic Product] – goes to unproductive expenses, paying interests on the debt.”

Pochmann points out how similar Brazil’s current economic policy, which favors rentiers, is comparable to the country's neoliberal years in the 1990s, during Fernando Henrique Cardoso’s administration (1995-2002), when public debt exceeded 70% of the country’s total GDP.

“What happened in the 1990s, especially during Cardoso’s government, is similar to what we started to witness since 2016, which is exactly the rhetoric of fighting public expenditures or ‘waste.’ That is, they treat it as if it were a fiscal austerity issue. In the 1990s, we witnessed widespread privatization, the auctioning off of lucrative national assets, regressive tax increases and major cuts to public spending,” he added. 

Pension Reform

Fattorelli argues that these regressive economic policies are part of a broader strategy to introduce unpopular measures, such as privatization and the elimination of basic rights. 

“What has always been behind the Pension Reform, for example, is reducing the volume of resources to social security, so there is more left to pay interests [on public debt]. This is what’s behind it. There is a direct relationship between this reform and public debt. It has also been used to justify privatizations. The money we get from privatization goes to paying public debt.”


But, ultimately, who is the primary benefactor from government debt? Fattorelli explains that creditor data is confidential in Brazil, which he argues is a violation of the country’s Constitution since Brazilian law requires a criterion of transparency in order for the government to carry out financial operations.

“We only know banks make up half of the public debt. National and foreign investment funds and pension funds, each has around 18%. Tesouro Direto [a program that allows individuals to purchase public bonds through the internet], which is what any of us can buy, has less than 1% of debt owners. So most of it is with banks,” she explains.

Fattorelli advocates that citizens should audit the public debt in order to identify illegally issued bonds and discrepancies between tax revenue and the payment of interests on debt.

“We’ve been publishing data about the public debt for 18 years, calling people to learn about this. The only way to have this audit the way we want – bringing the truth to light and interpreting the data – is to have the population really taking part in it. The audit we want is an audit by the people, with public participation, hence our effort to inform people about this issue.”

According to the International Monetary Fund (IMF), Brazil’s public debt is expected to surpass 87% of the country’s GDP in 2018, one of the highest public debt levels in Latin America.

Edited by: Diego Sartorato | Translated by Aline Scátola and reviewed by Nate Singham