On February 20, 1987, then President José Sarney made a statement in the national chain to announce that Brazil would not pay interest on the debt. A few days later, Paul Volcker (president of the FED) declared: “Confidence in Brazil has been lost”.
And the country plunged into a huge credit crisis that would only begin to be overcome in 1994 with the Real plan. After years, Brazil left SPC & Serasa Internacional and won the certificate of economic maturity in 2008, being certified as a good payer by the main credit agencies.
But as the philosopher Edmund Burke would say: “People who do not know their history tend to repeat it”, And we are apparently running to repeat history with our public debt.
To finance government spending, Brazil issues fixed-income securities with terms ranging from 1 to 25 years. On the Treasury Direct website, you can find bonds such as IPCA + 2045 or even IPCA + 2055. This is because the government spends more than it collects and since it has no money to pay now, it makes very long-term loans.
Investors, relying on the government's ability, lend their money in the hope that they will one day receive the promised interest. As we saw at the beginning of the text, this does not always happen, especially if the debt is out of control.
Ah! What is that? They are out of control
And our public debt, as shown in the chart below, looks like a letter from Bonde do Tigrão: “It goes up, it goes down, it goes round” but in the end we all know that it “is out of control.
According to estimates by the National Treasury – the body that controls its tax money – Brazil may reach the end of 2020 with a public debt equivalent to 98% of GDP. That is, to pay the debt, 98% of everything that Brazil produces in 1 year would be necessary.
The public debt, only from the federal government, will be ~ R $ 6,581,680,000,000. If each real of the debt were converted into seconds, it would total 192 thousand years. According to Wikipedia, 190,000 years ago Homo Sapiens had just emerged on the African continent.
Every new Brazilian is born with a debt on his back
The federal government's debt is huge and will take a long time to be paid off. If you had a child in 2020, he was born with an obligation to pay taxes and is most likely already registered with a government agency. Much of the taxes paid by your child will fatally pay off part of the federal public debt.
In 2019 alone, the Federal Government (with its money) paid R $ 1.038 trillion in interest and debt repayments.
According to the IBGE, the Brazilian population grows at a rate of 0.76% per year. This year's debt could grow by more than 9%.
That means that by 2021 all new Brazilians who are born already start with a debt of R $ ~ 30 thousand – if we divide the public debt equally among all Brazilians. And everything indicates that this value will continue to grow over the next decade, mainly due to the change in economic policy of the Bolsonaro government.
The current Regional Development Secretary, Rogério Marinho, wants to create the Pro-Brasil program. This new program is a kind of resurrection of the PAC (Growth Acceleration Program, star of the Dilma government), in short, it is a way of trying to warm up the economy by spending public money. And that translates to debt.
In the famous video of the ministerial meeting on April 22, President Bolsonaro himself gave voice to the desire to create one of the largest government procurement programs that Brazil has ever seen, the “Bolsa Quartel”. Understand more about the “Bolsa Quartel” plan of Bolsonaro and Paulo Guedes.
Argentina, Greece, Japan and the United States
The fact is that Brazil is not the only one to experience problems with the public debt. In 2015, with 150% of GDP in debt, Greece decreed a moratorium.
Argentines may not be the best in football, but they are great at not paying public debt. The brothers have already defaulted 8 times in their history, the last time was in May this year (2020).
The Japanese are the exception, due to the size and importance of their economy, they manage to borrow at low interest rates (often negative). Currently, the Japanese debt already exceeds 200% of GDP, but even it has a date to explode. In 2040, tax revenues will not be able to cover even the interest on the debt and then Japan will either have to declare a moratorium or create hyperinflation.
The North Americans seem to follow the same Japanese path, with the difference of having a stronger currency. The dollar being the world reserve of value, the US Central Bank manages to print trillions without generating so much economic damage, since the American currency is in high demand abroad.
And Brazil? What is our situation?
Brazil is not a Japan or the United States, we are culturally and economically similar to Argentina, even taking 8 × 1 in terms of moratorium.
The Brazilian situation is one of insecurity. On the one hand, we have the spending ceiling, which limits the government's borrowing power and matches the increase in public accounts with the growth in inflation. On the other, politicians with health for public spending on pharaonic works, employment programs and aid to capture votes.
“In the context of the pandemic, the spending ceiling indirectly allowed for a major transitory fiscal expansion to be put in place without the premiums charged by public debt financiers going beyond normal. The signal issued by the spending ceiling that there will be a resumption of fiscal adjustment via expenditure restraint from 2021 was what allowed the government's fiscal reaction without deleterious effects later on, ”said the Economic Policy Secretariat of the Ministry of Economy .
If the ceiling falls, the public debt will not be insured and your son who has been born or will be born owing R $ 30 thousand, would easily see that amount rise by 5%, 10% or 50%.
In this trajectory and trying to destroy the spending ceiling, it is not difficult to imagine that in a few years we will have the scene of Sarney repeating itself. The difference is that not even the Fed chairman will have the balls to say, “Confidence in Brazil has been lost”As confidence in the FED may have been lost as well.