Fernando Alcoforado *
Article under the title Aperte o bolso: o calote vem aí (Fasten the pocket: the default comes) from Luiz Cezar Fernandes, a partner of Grt Partners and creator of the banks Garantia and Pactual, available on the website <https://www.brasil247.com/pt/247/economia/313073/Banqueiro-avisa-o-calote-da-d%C3%ADvida-vem-a%C3%AD.htm>, demonstrates the unsustainability of domestic public debt whose content is as follows:
The next government will inevitably be seduced by a default on public debt. The growth of the domestic public debt will reach 100% of the Gross Domestic Product – GDP of Brazil, already in the next government. The situation will be unsustainable, generating complete ungovernability. Banks, now cartelized into 5 large organizations, have reduced lending to the private sector and have invested, in reverse, the application of public debt securities.
Countries that recently fell into default, such as Greece, did not cause major internal shocks because their debt was mostly external and largely sprayed, including central banks, mutual funds and pension funds. The case of Brazil is essentially diverse. A default of our internal debt will lead to bankruptcy of the system, ranging from large banks to individuals, through family offices and the like. To avoid a bank run, large banking institutions will have to prevent their customers from withdrawing their savings in sight or in the long term. Otherwise, we will have an even worse situation than that experienced by Venezuela. Reforms already or there will be only the default.
This article by the banker Luiz Cezar Fernandes confirms our thesis presented in numerous articles of ours that the public debt represents the biggest problem of Brazil that is demanding immediate solution. If there is no reversal of the trend of domestic public debt and the policy of paying interest and amortizations, the imbalance between demand and availability of resources to meet Brazil’s economic and social infrastructure needs and transfer to social security, states and municipalities will accentuate with the passage of time to the detriment of the population and the national productive sector.
To solve the problem of internal public debt, the federal government will have to renegotiate with national and foreign banks (creditors of 55% of public debt), investment funds (creditors of 21% of public debt), pension funds 16% of the public debt) and non-financial corporations (creditors of 8% of the public debt), the reduction of the expenses with the payment of the service of the debt lengthening the payment of interest and amortizations of the public debt. Without this solution, the scenario set by the banker Luiz Cezar Fernandes will occur with the failure of the system, the bankruptcy of banks and the confiscation of the savings of individuals.
In addition to internal public debt, mass unemployment tends to lead the country to an unprecedented social upheaval. Publication of the newspaper Estado de S. Paulo under the title Falta emprego para 27,6 milhões no País, mostra IBGE (Missing 27.6 million jobs in Brazil, shows IBGE), available on the website <https://economia.estadao.com.br/noticias/geral,falta-emprego-para-27-6-milhoes-no-pais-mostra-ibge,70002455439>, reports that work is missing today for 27.636 million Brazilians. This information was published by the Quarterly National Continuous Household Sample Survey, compiled by the Brazilian Institute of Geography and Statistics (IBGE). These numbers are a picture of the employment situation in the country in the second quarter of 2018 (April, May and June). The rate of under-utilization of the labor force is an indicator that includes the percentage of unemployment, the rate of underemployment due to insufficient hours, and the rate of the potential workforce, people who are not in search of a job but would be available to work.
One more information gets attention. The country has 3.162 million people in search of a job for more than two years. Brazil reached a record 4.833 million people in a situation of discouragement in the second quarter of 2018, the highest level of the historical series started in 2012 by IBGE. In the first quarter of 2012, the beginning of the historical series of research, this population totaled 1,995 million. The discouraged population is defined as one who was out of the labor force for one of the following reasons: he could not get work, or had no experience, or was very young or old, or found no work in the locality and that if he had gotten a job, would be available to take the job. The discouraged are part of the potential workforce. In the second quarter of 2018, the highest rates of unemployment among the units of the federation were Amapá (21.3%), Alagoas (17.3%), Pernambuco (16.9%), Sergipe and Bahia (16.5%). The lowest rates of unemployment were observed in Santa Catarina (6.5%), Mato Grosso do Sul (7.6%), Rio Grande do Sul (8.3%) and Mato Grosso (8.5%).
In order to solve the problem of mass unemployment in Brazil, it is necessary first of all to renegotiate with the creditors the lengthening of the payment of the public debt burden for the federal government to have the necessary resources to reactivate the Brazilian economy, to immediately adopt the measures described below:
1) Elaboration of a program of works on economic infrastructure (energy, transport and communications) and social infrastructure (education, health, housing, basic sanitation and environment) that requires resources of around R $ 2.5 trillion.
2) Public / private partnership in the execution of economic and social infrastructure works.
3) Elaboration of an industrial development program that replaces imports and is aimed at exports to reactivate the Brazilian economy.
4) Raising public savings by increasing public revenues and reducing government costs so that it has the resources to invest in economic and social infrastructure.
5) Increase of the public collection with the taxation of the great fortunes, the dividends of individuals and the banks.
6) Reduction of government costs with the elimination of superfluous expenses in all the powers of the Republic and the reduction of public agencies and commissioned personnel
7) Drastic reduction of bank interest rates to encourage private investment in economic and social infrastructure works, industry and the economy in general.
It is important to note that Brazil’s largest economic leverage is the infrastructure sector that will most quickly lead to the recovery of the Brazilian economy. Emphasis should be given by the Brazilian government to raising the rates of savings and public and private investment to invest in the growth of the national economy. Domestic public debt and mass unemployment will therefore only be overcome by adopting the measures described above in order to prevent the collapse of the Brazilian economy and reactivate them to eliminate or significantly reduce unemployment in Brazil.
* Fernando Alcoforado, 78, member of the Bahia Academy of Education, engineer and doctor in Territorial Planning and Regional Development by the University of Barcelona, university professor and consultant in the areas of strategic planning, business planning, regional planning and planning of energy systems, is the author of 13 books addressing issues such as Globalization and Development, Brazilian Economy, Global Warming and Climate Change, The Factors that Condition Economic and Social Development, Energy in the world and The Great Scientific, Economic, and Social Revolutions that Changed the World.
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