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Deficit, debt and adjustment: a note on the Brazilian case

Author

Listed:
  • Armínio Fraga Neto

    (Departamento de Economia da Pontifícia Universidade Católica do Rio de Janeiro – PUC/RJ, Brasil.)

  • André Lara Resende

    (Departamento de Economia da Pontifícia Universidade Católica do Rio de Janeiro – PUC/RJ, Brasil.)

Abstract

Starting from the consolidated government budget constraint it is possible to illuminatea number of issues concerning Brazil’s current economic situation. The main conclusionsthat emerge from the analysis are that the fiscal imbalance will require a substantialincrease in the government’s debt in real terms and that the impact of this increase on interestrates may have perverse explosive intertemporal consequences. We then discuss and dismissthe “new (external) money” solution for the problem, arguing that Brazil does not facea foreign exchange problem, but a domestic budgetary problem. The debt-service transferis being made, but not by the principal debtor, the government. The private sector pays theexternal bill for the government and becomes the government’s creditor domestically. In thelong run, to obtain simultaneous external and internal balance Brazil will have to solve theinternal budgetary problem. JEL Classification: H62; H63.

Suggested Citation

  • Armínio Fraga Neto & André Lara Resende, 1985. "Deficit, debt and adjustment: a note on the Brazilian case," Brazilian Journal of Political Economy, Center of Political Economy, vol. 5(4), pages 531-540, October.
    • Handle: RePEc:ekm:repojs:v:5:y:1985:i:4:id:96520
    DOI: 10.1590/0101-31571985-4057
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    Keywords

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    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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