Brazil's Debt Over US$ 300 bi

Brazil's debt/GDP ratio spiked in May to 56.8 percent of GDP
due to the real's devaluation against the dollar. According to
the Brazilian government, however, this is good news. They
point that last December the debt/GDP ratio was 58.7 percent,
which means that there has been "a significant reduction."

Gustavo Bernardes

Brazil's federal government debt reached US$ 304.3 billion (946.7 billion reais) in May, the equivalent of 56.8 percent of GDP. In April the ratio was 56.5 percent.

According to the head of the Central Bank Economic Department, Altamir Lopes, a spike in the exchange rate, which rose 6.26 percent in May, caused the size of the debt to rise US$ 1.3 billion (4.2 billion reais) because of money-market debt indexed to the dollar and another US $3.3 billion (10.4 billion reais) because of debt service charges, also in dollars.

But Lopes points out that last December the debt/GDP ratio was 58.7 percent, which shows that there has actually been "a significant reduction of 1.93 percentage points," a reflection of responsible fiscal policy, he said.

Another reflection of good government policy was the primary surplus in May, says Lopes, which was the best ever for May at US$ 1.8 billion (5.8 billion reais). That brings the surplus to US$ 12.3 billion (38.2 billion reais), the equivalent of 5.87 percent of GDP, for the January to May period.

Lopes also reports that Brazil's total government debt, which includes states and municipalities, reached US$ 409 billion (1.273 trillion reais), or 76.4 percent of GDP. In April it was 77.4 percent of GDP.

Income Drops

On another front, the IBGE's (Instituto Brasileiro de Geografia e Estatística—Brazilian Institute of Geography and Statistic) Monthly Employment Survey (PME), released June 24, found a decrease in the real average income of Brazilian workers.

Average monthly income, which was US$ 283.32 (878.30 reais) in May, 2003, was down to US$ 279.92 (866.10 reais) last month in the country's six largest metropolitan areas (São Paulo, Porto Alegre, Rio de Janeiro, Salvador, Belo Horizonte, and Recife).

The drop represents one of the chief indicators of the decline in the quality of employment in Brazil, a phenomenon already observed in previous studies.

Even though the number of jobs remains practically the same in the six metropolitan areas covered by the survey, average income has been falling continuously, due to the type of jobs that have been created.

Companies have been hiring more workers informally, paying lower salaries, and omitting social benefits, such as Social Security contributions, for example.

The average income of employees whose working papers are not signed amounts to 63 percent of the average income of employees hired with signed working papers.

According to data from the IBGE's National Residential Sample Surveys (PNADs), 6.7 million jobs were created between 1999 and 2002 at monthly salaries no higher than the minimum wage (US$ 84.03), while 4.2 million workers who earned more than two minimum wages lost their jobs.

The more years of schooling a worker has, the longer it takes to find a new job. This is shown by another of the IBGE's indicators contained in the PME.

Optimistic Estimate

The prospects for Brazil's external accounts are very encouraging, in the judgment of the head of the Economic Department of the Central Bank (BC), Altamir Lopes.

He said that the US$ 2.4 billion cumulative surplus this year between January and May in the country's current external transactions—a category that includes receipts and expenditures for international travel, profit remittances, exports and imports, and interest payments—is a sign that the economy is less vulnerable.

"Since the figures are better than what was anticipated, Brazilian companies will not need to obtain as much money abroad in order to close the balance of payments," he said.

According to Lopes, the surplus in this year's current transactions might reach US$ 2.5 billion—12 times more than the US$ 200 million forecast at the beginning of the year.

In May alone, the current external transactions account generated a surplus of US$ 1.478 billion, the best result since 1947.

Strategic Trips

Last week, the Brazilian government ended what it called a "strategic" series of trips abroad in favor of the Brazilian economy. According to President Luiz Inácio Lula da Silva, the trips brought "extraordinary" results, especially in the export sector.

"Exports rose significantly in the first year of our administration. This year they are up 25 percent over last year. And the important thing is that we are not just exporting farm produce. We are exporting manufactured goods, such as cars, airplanes and machinery," declared Lula during his fortnightly radio program, "Breakfast with the President."

The trip last week to the United States, according to Lula, gave Brazil's ties with its biggest trade partner a dynamic boost. More trade with the US means more jobs, economic growth and bigger incomes for Brazilians, said the President. "I came back from the trip convinced that it was a success," said Lula.

The President went on to say that he was determined to create "a bolder commercial, cultural and political relationship with the US."

But Lula added that Brazil's true intention was to strengthen trade with regional blocks in South America, Africa, the Middle East and Europe. "World trade is a battle. Everybody wants to sell more than they buy. That means we have to have quality at a good price all the time. We will have to continue making these trips, consolidating our advances, treating foreign trade with special attention," said Lula.

During his radio talk, the President also spoke of the drop in unemployment that fell from 13.1 percent to 12.2 percent in May. Lula said the tendency is for unemployment to drop further, but that the government faced a very big challenge in creating jobs.

"There is still a lot to do. When the economy improves, businesses prefer to pay overtime, rather than hire new workers. They want to make sure the growth is sustainable. When they see that the growth is strong, they will hire new people," said the President.

Lula pointed out that between January and April, 543,000 new jobs had been created—jobs in the formal, on-the-books market. "Things are improving. But we want more, faster. We believe that microfinancing and easier credit access are having an effect. The Brazilian economy is on track, there will be sustainable, continuous growth."

Lula also said he was pleased with the tourism sector where there was a US$ 347 million surplus, showing that more people were coming to Brazil than Brazilians going abroad. Tourism, concluded Lula, is a job-creating sector that brings reserves to the country.

Gustavo Bernardes works for Agência Brasil (AB), the official press agency of the Brazilian government. Comments are welcome at lia@radiobras.gov.br

Translated from the Portuguese by Allen Bennett.