The Brazilian government is back to pumping credit to stimulate consumption at a time when risky ingredients are in play: Brazilians never owed ​​so much and never committed so great of a portion of their salaries to pay off debts. Since the 2008 crisis, when the government increased the supply of credit to stabilize the economy, the total debt of Brazilians jumped by 80.7% and their monthly debt service shot up 60%. Meanwhile, wages increased at a much slower pace: 33.3%.

Central bank (BC) data show that household debt is at the highest level in history. For instance, individuals owe banks about R$715 billion in short-term debt, like micro-credit, overdraft (“cheque especial”) and credit cards, as well as in longer-term finance dealings like real estate and autos.

According to the CB, every Brazilian currently owes a record 42% of their yearly salaries. Just three years ago, before the crisis began in 2008, this debt ratio was 32%. It would be like saying that, on average, each of more than 192 million Brazilians currently owe R$3,724 to banks. This number used to be R$2,093 in 2008.

The CB’s director of economic policy, Carlos Araujo Hamilton, said earlier this month that the institution is not concerned with the increase in household debt, considering that interest has fallen and the labor market is in frank expansion.

In recent days, the Central Bank withdrew some of the restrictions imposed on credit at the end of last year. In order to increase domestic demand, it announced incentives for consumer financing such as credit for vehicles, individuals, and payroll. Moreover, the lowering of interest rates in August had the goal of cheapening credit, encourage consumption and thus reduce the effects of the international crisis. The recipe is very similar to that used in the 2008 crisis.

Reopening the faucet (“Reabrindo a torneira”)
For instance, the government decided to really open the tap end of this year. The low-end housing program Minha Casa Minha Vida  received a sweet injection of funds from the 2011 budget. In the first 15 days of November, the allowance paid to borrowers in municipalities with fewer than 50,000 inhabitants soared, from R$6.7 million to R$345 million.

But, overall, the picture has been changing gradually. Despite the effort to stimulate the domestic economy, the grim economic picture has worsened according to indicators like high inventories, weak industrial production, and fewer jobs created.

Source: Estadao, Folha

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