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By FERNANDO NOGUEIRA DA COSTA*

The interest policy provides financial accumulation for individual and foreign investors, who become rich at the expense of the debt of non-financial companies and the government

The peak in the extended credit time series, considering loans (39%), debt securities (44%) and external debt (17%), occurred in the initial year of social distancing with an easy credit policy, due to the pandemic: 157% of GDP. Last year, it fell to 143% of GDP, demonstrating financial deleveraging (cutting debt).

From 2017 to 2023, loans from the national financial system remained around the average of 37% of the total, debt securities increased from 41% to 44% and there was a drop in the relative share of external debt from 20% to 17%. The capital market contributed relatively more: public debt securities were 33% of the total, private debt securities 6% (compared to 4% in 2017) and securitized securities 5% (compared to 2% in 2017) of the total.

These numbers demonstrate the relative autonomy of the national financial system compared to the international one. The Brazilian problem is the lack of technological autonomy.

As for expanded credit borrowers, the table above shows that, from 2013 to 2020, the government (from 37% to 45%) gave a crowding out (displacement) in non-financial companies (from 40% to 35%) and families (from 23% to 21%). In later years, it gradually decreased.

It is interesting to highlight, in the next table, the diversity of financing sources typical of these “institutional sectors”: 82% for the government comes from public debt securities, 93% for loan families (credit cards, real estate credit, vehicle financing, etc. .) and non-financial companies have a greater diversity of financial instruments with 39% loans, 30% private debt securities (e.g. debentures) and 31% external debt.

By consolidating the evolution of net financial assets by sector, the difference between financial assets and liabilities revealed the net lending institutional sectors (with a positive + sign) of the Brazilian economy from December 2018 to June 2022 according to the Equity Matrix Financial prepared by the Central Bank of Brazil. These were families (+76% of the total granted) and the rest of the world (+24%).

In contrast, the net borrowing sectors (with a negative sign -) were non-financial companies (-62%) and the government (-38%). They were structurally debtors without major changes in their relative shares in the total taken over these 3,5 years.

The financial system presented its financial companies with an almost balanced consolidated position (difference between assets and liabilities with a residue close to zero), due to its resource intermediation function. After all, all institutional sectors interact through the financing, money management and payments subsystems.

Expanded payment methods are leading indicators of demand pressure on the real sector, with other alternatives differing by degree of liquidity compared to restricted payment methods. Portfolio reallocation facilities allow M1 (paper money held by the public and demand deposits) to be at the level necessary for transactions in passive response to increases in the price level.

In the time series from 2011 to 2023, there was a demonetization of M1 (from 9% to 5% of the total M4) and a fall in the relative share of savings deposits (from 12% to 8%) in favor of an increase in term deposits – in a U-shape, with the recovery together with the increase in the Selic interest rate from March 2021 to October 2023. Also notable, in the last two years of the historical series, was the increase in private bonds issued in the form of Bills Credit (Agricultural in LCA and Real Estate in LCI), apart from CRA, CRI etc. with tax-free income for Individual investors: they ranged from 3% to 7%, demonstrating abuse and misuse of purpose, now pruned by the social-developmentalist government.

Loads of public debt securities by Investment Funds and/or directly by market participants represent around half of total M4. M4 was R$3,4 trillion in 2011 and rose to around R$12 trillion in 2023, or from 78% of GDP to 110% of GDP, demonstrating the great accumulation of financial wealth by investors, by providing funding (sources of financing) for both non-financial companies and the government – ​​and a smaller part for indebted families.

Who pays for this? For loans, borrowers pay credit spread placed on the cost of funding, covering losses due to default, tax wedge, administrative expenses and profit. Taxpayers ultimately pay for public debt – and their financial burden depends fundamentally on the interest policy of the Central Bank of Brazil.

The table above shows the peak of the time series with DBGG occurring in the initial year of social assistance (2020), due to the pandemic, when it reached 88,6% of GDP. Then, there was the inversion of the U with the ineffectiveness of the neoliberal/neo-fascist government, including making electoral expenditures, but postponing commitments for the next social-developmentalist government, due to the electoral failure and coup.

The interest paid on DBGG were the main factors conditioning its growth in the 2015-2016 years of the semi-parliamentary coup and in the period after the resumption of the increase in March 2021. Although nominal GDP growth due to inflation counteracted this increase in 2021 and 2022, did not maintain the pace in 2023, because the inflation rate fell from 10,06% in 2021 to 4,62% in 2023.

Regarding the evolution of Net Debt (discounting from DBGG the sum of credits from the non-financial public sector and the Central Bank, that is, foreign exchange reserves), in the table above, it is also clear the main factors conditioning the NFSP (Financing Need of the Public Sector) was the primary deficit of 2,3% of GDP in 2023, but mainly the cost of nominal interest at 6,6% of GDP. The nominal GDP growth effect did not offer as strong a counterbalance as in previous years, due to lower inflation.

In a holistic view of the national and international financial system, both interact, but with less dependence on the first compared to the second. In a dynamic process (variable over time), the interest policy provides financial accumulation for individual and foreign investors, who become rich at the expense of the debt of non-financial companies and the government.

Companies obtain equity profitability with financial leverage, that is, operating profits above financial expenses. Taxpayers pay taxes largely to cover the interest on public debt bonds, many of which they themselves receive. And Brazilian life continues… with low income growth.

*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Brazil of banks (EDUSP). [https://amzn.to/3r9xVNh]


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