Reasons for the high interest rates of Brazil

The Treasury issues bonds under base rate Selic (11%) and the BNDES lends to companies based on the Long Term Interest Rate (TJLP) of 5%. The spread represents the Treasury subsidies, estimated at R$30 billion a year. Most of them are not included in the Budget of the Union, run outside of primary spending and cannot be influenced by Congress, which holds the task of discussing and approving the budget.

Half of credit operations in Brazil don't obey the base rate (Selic) and therefore are not subject to the Central Bank's monetary policy. These rates only affect free credit.

This means that an important share of portfolios at state-run banks is out of reach for the decisions of the Monetary Policy Committee (Copom). They are guided by fixed rates set by the Monetary Policy Council (CMN).

The result of this model is that to fight inflation with the interest rate, according to the inflation targeting regime, the Central Bank has to double its efforts. And who pays the bill for the high rates are those without access to the BNDES, farm credit from Banco do Brasil or housing loans from Caixa Econômica Federal.

Without understanding this anomaly and its effect on demand, there is no way to seriously discuss the reasons why interest rates in Brazil are much higher than in the rest of the world. Since the Selic affects only half of credit, its level has to be much higher than reasonable to contain inflationary pressures. One of the main channels through which the interest-rate lowers demand and fights inflation is credit.

Brazil: Why It Fails to Deliver on Potential

Looking beyond politics
Politics continue to dominate market sentiment. Doubts about the capacity to sustain the current economic model in coming years and a highly unpredictable Presidential election have fuelled recent market swings. But would a confidence shock alone be sufficient to raise Brazil's growth trend? We don't think so.

Why Brazil fails to deliver on potential
A rebound in sentiment could lead to a better growth outlook in the short term but would likely be insufficient to boost Brazil's medium to long-term growth trend. This is because a large part of Brazil's slowdown has clear structural roots, in our view.

Salários devem crescer com a economia, diz Arminio

Chamado ao debate pela presidente Dilma Rousseff, candidata à reeleição, o ex-presidente do Banco Central, Arminio Fraga, escolhido para ser o ministro da Fazenda de um eventual governo Aécio Neves, afirma que tal como proposto pela campanha do PT, tal comparação é "rasteira" e uma tentativa de "fugir do debate".

O cerne da questão é recuperar a capacidade do país de crescer. "Para os salários continuarem a crescer, para os programas sociais continuarem a crescer, é preciso que a economia cresça". Para ele, apesar de todos os progressos o Brasil continua a ser um país "tremendamente desigual".

R$27.5bn in atypical revenues in 2015

The 2015 budget proposal, sent by the government to Congress in late August, was prepared with the forecast of non-recurring or atypical revenues of R$27.5 billion, higher than the one forecast for this year. The numbers indicate that, in order to achieve what it sets out to, the government may have planned for next year a new Refis — the tax-settlement program that offers interest and fine discounts to end collection disputes.

An atypical or non-recurring revenue is the one that is not part of the regular flow of tax collections in the ongoing fiscal year. It generally refers to previous years and are due to tax actions carried out by the Federal Revenue and by the Office of the Attorney-General of the National Finance (PGFN). By definition, the final amount to be obtained with this type of revenue is unpredictable, but the government tends to project a certain amount it expects to obtain in the budget proposal of each year, based on information it has about court litigation close to conclusion or on political decisions, such as the offering of a settlement with favorable conditions to taxpayers.