An excerpt from Asia Times

Part 1:Yay, Commodities Are Up!
The huge fiscal problem faced by Brazil has been masked for a number of years by the relentless global increase in commodity prices, which improved Brazil’s balance of payments and allowed its public debt position to improve significantly as export revenues surged. Inflation, which would normally have become a serious problem in such a situation, was tamped down by the very high interest rates and the consequent strength of the real.
Part 2: Lucky Lula and Elections
Then in 2010, as is often the case with center-left governments who have got lucky with the economy, Lula overdid the spending, as he attempted to secure election for his protege Dilma Rousseff. Not only did the official budget deficit widen by about 2% of gross domestic product (GDP), but the development bank BNDES went on a lending spree and the state corporate sector went wild with losses. 
Part 3: Let’s Milk It! (Petrobras)
The position was made to look respectable by the government extracting US$50 billion from the unfortunate Petrobras, through selling the same oil reserves to it twice, but in reality overheating was inevitable, however sound the central bank’s monetary policy (12% interest rates). 

Part 4: Poor Dilma is lost
Rousseff has made only feeble attempts to control public spending and has shown signs of meddling in Brazilian industry far beyond the official government companies, playing favorites recently in a retail takeover bid. Now Brazilian consumer borrowing is out of control, with consumer debt service at 28% of disposable income, compared with 16% in the US at the height of the 2007 credit bubble. 

Part 5: The Coming Crisis
High Brazilian interest rates (a mean 47% on consumer borrowing) make debt service greater than in the US for a given amount of debt, but even so it seems likely that with both government and consumers overspending, Brazil is due for the father and mother of a credit crunch. 

Source: Asia Times

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