The budgetary process in Brazil

Brazil, as well as most Latin American countries, have an inflated public sector,which follows from the expansive government policies pursued until late 70’s, largelyfinanced by external indebtedness. Currently, the lack of transparency and the complexity ofpublic sector accounts hinder the effectiveness of stabilization policies and the productivityof state enterprises. Federal government budget is often balanced, but it does not coverexpenditures of the whole public sector. A large amount of subsidies to state enterprises andlocal treasuries are provided indirectly with federal funds through state banks and monetaryauthorities. A full-scale bailing out program to alleviate highly indebted enterprises willallow the Central Bank and other financial intermediaries to stop acting as a lender oflast resort. In order to fully recover the effectiveness of government policies it is necessaryto decentralize national expenditures, grant autonomy to local governments and stateenterprises and to minimize their financial mutual dependence. JEL Classification: H11