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Fiscal Policy and Debt Sustainability: Cardoso's Brazil, 1995-2002

  • International Monetary Fund
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    We look into Brazil's public sector accounts during the two administrations of President Fernando Henrique Cardoso: 1995-98 and 1998-2002. We underline the fact that the authorities' attitude was as important as the pace of the structural reforms for understanding the dynamics of the public sector debt and deficit. The high deficit of the first administration (1995-98) resulted from an expansionary policy, while the adjustment of 1999 is seen as proof of a commitment to fiscal rigor and the need to finance public spending adequately. We present a detailed breakdown of the fiscal outcomes. Two important messages come out: (a) the principal cause of the fiscal deterioration in the first Cardoso administration was the deterioration in the primary balance rather than the increase in the interest payments on public debt; and (b) the fiscal adjustment was entirely on account of increased revenues, as the federal primary public expenditure grew in real terms during the eight years of the two administrations. We consider the outlook for fiscal sustainability, and conclude that, to preserve the hard-won fiscal discipline, the authorities' recent austere fiscal attitude should be permanently embedded into the fiscal institutions.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/156.

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    Length: 44
    Date of creation: 01 Aug 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/156
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    1. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
    2. Luporini, Viviane, 2000. "Sustainability of the Brazilian Fiscal Policy and Central bank Independence," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 54(2), April.
    3. Wilcox, David W, 1989. "The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 291-306, August.
    4. Rocha, Fabiana, 1997. "Long-Run Limits on the Brazilian Government Debt," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 51(4), October.
    5. Rudiger Dornbusch & Sebastian Edwards, 1989. "Macroeconomic Populism in Latin America," NBER Working Papers 2986, National Bureau of Economic Research, Inc.
    6. Marcio Gomes Pinto Garcia & Tatiana Glindmeier Didier Brandao, 2001. "Taxa de Juros, Risco Cambial e Risco Brasil," Anais do XXIX Encontro Nacional de Economia [Proceedings of the 29th Brazilian Economics Meeting] 031, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    7. Afonso S. Bevilaqua & Rogério L. F. Werneck, 1998. "The quality of the federal net debt in Brazil," Textos para discussão 385, Department of Economics PUC-Rio (Brazil).
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