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

Armínio Fraga Neto () and André Lara Resende ()

Brazilian Journal of Political Economy, 1985, vol. 5, issue 4, 531-540

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.

Keywords: Deficit; public debt; adjustment (search for similar items in EconPapers)
Date: 1985
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