Download FISCAL POLICY IN BRAZIL AND JAPAN WHAT CAN BE LEARNED

BRASIL - MINISTÉRIO DA FAZENDA
SEMINAR ON ECONOMIC POLICIES
POLICY RESEARCH INSTITUTE
MINISTRY OF FINANCE
JAPANESE GOVERNMENT
FISCAL POLICY IN BRAZIL AND JAPAN
WHAT CAN BE LEARNED
Name of Participant: MÁRIO FALCÃO PESSOA – Chief of Division
Name of Organization: Ministry of Finance – National Treasury Secretariat
Name of Country: BRAZIL
Tokio - 31st May 2004
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CONTENTS
1. Introduction …………………………………………………………………………….
2
2. Fiscal Policy and Fiscal Deficit: Theory and Practice ……………..…………………... 5
3. Brazil: Fiscal Policy from 1998 until now ………………………………………………16
4. Japan: Fiscal Policy from 1997 until now ……………………………………………... 27
5. Brazil: Results of its Fiscal Policy …………………………………………………….. 32
6. Japan: Results of its Fiscal Policy ……………………………………………………… 38
7. What can be Learned …………………………………………………………………… 41
Bibliography ………………………………………………………………………………. 45
Tables ……………………………………………………………………………………… 47
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1. INTRODUCTION
Japan and Brazil experienced a remarkable growth from the 1950s to the 1970s. In both
countries this period was known as ‘economic miracle’. But since the first oil shock in 1972/73
governments have adopted different strategies to maintain the same level of development of the
previous years. Japan decided to move its economic development based in its internal savings and
used public debt to finance infrastructure projects. In the case of Brazil, due to the lack of internal
savings, it has experienced a significant increase in its external debt because country assumed that
external savings could be directed to finance its investments. But the consequences to Brazil were
dramatic because during the second oil shock in 1980 and then at every crisis in the international
financial market it has been exposed to the changes in the sudden movement of external private
capital that has resulted in raising inflation rates, unstable exchange rate and high interest rates
resulting in permanent difficulty to finance its current account. In this sense the 1980s is considered
a lost decade. For Japan the consequences were a continuous stagnation in economic growth,
disinflation and a remarkable increase in public deficit and public debt.
Figure 1: Real Growth Rate as a Proportion of GDP % – Japan and Brazil – 1957-2003
Japan and Brazil - Real GDP Growth Rate - 1957-2003
15.0
1,200.0
1,000.0
800.0
%
5.0
600.0
19
5
19 6
1957
5
19 8
5
19 9
6
19 0
1961
6
19 2
6
19 3
6
19 4
1965
6
19 6
6
19 7
6
19 8
1969
7
19 0
7
19 1
7
19 2
1973
7
19 4
7
19 5
7
19 6
1977
7
19 8
7
19 9
8
19 0
1981
8
19 2
8
19 3
8
19 4
1985
8
19 6
8
19 7
8
19 8
1989
9
19 0
9
19 1
9
19 2
1993
9
19 4
9
19 5
9
19 6
1997
9
19 8
9
20 9
0
20 0
2001
0
20 2
03
0.0
400.0
-5.0
200.0
-10.0
0.0
Year
Real GDP Growth Rate %
Growth Rate %
Cumulative GDP 1956=100
2
GDP 1956=100
Cumulative GDP Index
10.0
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One issue that has significantly been considered as an important factor to allow countries
promote economic growth in a sustainable basis is the way fiscal policy is conducted. This paper
will be concentrated in analyzing fiscal policies during the last 10 years for the two countries. In
Brazil it has been implemented a very important structural change in its budget and fiscal policy
since a Fiscal Responsibility Act (LRF in Portuguese) was approved in year 2000. This law was
largely influenced by a similar experience in New Zealand and is considered a milestone in Brazilian
public financial management, helping to create a sound environment for future economic
development. On the other hand, Japan has adopted different strategies in relation to its fiscal policy
in the late 1990s and beginning of the 21st century especially considering its necessity to use fiscal
policy as a Keynesian mechanism to promote economic recovering. Due to a strong support from its
internal savings Japan has been able to finance its public debt in a more stable basis. But Japan was
not successful in building a legal and institution framework to control public deficit despite many
times targets have been established by the government.
In the case of Brazil, public debt has been used basically to guarantee payment of financial
expenditure. For Japan public debt has been also used to finance capital investment and current
expenditure. A sequence of external crisis and a small domestic saving have affected the capacity of
Brazil finances its debt. Due to these factors and a resilient inflation, the country needed to maintain
a significant restrictive monetary policy paying real interest rates of more than 3% per year for more
than a decade. It was not the situation of Japan that has been financed by its huge internal savings
paying a very low rate of interest. But, because the size of the public debt has increased sharply in
recent years it could represent a future threat to Japanese development. So, it is important for both
countries improve their fiscal policies in a way to be more effective to control the negative effects of
the public deficit.
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Table 1: General Government Gross Debt in Relation to GDP - Japan and Brazil 1985-2003
Year
Japan – Debt/GDP Ratio - %
Brazil - Debt/GDP Ratio - %
1985
50.0
1986
54.0
1987
55.2
1988
53.3
1989
50.2
1990
48.2
1991
47.6
1992
49.5
1993
55.7
1994
59.4
1995
65.3
1996
69.1
1997
74.6
1998
85.4
1999
96.3
2000
104.4
2001
121.2
2002
134.4
2003
145.1
Source: Brazil - Central Bank of Brazil; Japan - Ministry of Finance
52.6
49.4
50.3
46.9
40.2
40.6
37.9
37.2
33.0
29.2
30.5
33.3
34.3
41.7
48.7
48.8
52.6
55.5
58.7
Figure 2: Public Debt as a Proportion of GDP - Japan and Brazil – 1985/2003
Year
Japan - %
4
Brazil - %
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
19
85
%
Japan and Brazil - General Government Gross Debt to
GDP - % - 1985-2003
BRASIL - MINISTÉRIO DA FAZENDA
As it could be seen in figure 2 and table 1, Brazil and Japan have been suffering from a
significant increase in the Public Debt/GDP ratio in the last ten years. Brazil came from a ratio from
29% in 1994 to 59% in 2003, and Japan from 60% to 145% at the same period. What this paper will
try to demonstrate is what policies have been implemented in both countries and what results have
been achieved until now considering factors such as legislation background, level of transparency,
financial system framework, external factors and political and institutional aspects related to the
budget. In other words, the theoretical analysis is mainly related to the aspects emphasized by the
public choice approach.
The paper is organized in this way. In section 2 it is discussed theory and practice facing
fiscal deficit and what has been the experience worldwide to tackle this problem. Section 3 presents
the Brazilian fiscal management, the Fiscal Responsibility Act and the main strategies to reduce the
vulnerabilities of the country in financial terms. Chapter 4 shows the main fiscal policies adopted by
Japan since the middle of the 1990s until now. Chapters 5 and 6 demonstrate the main results of
fiscal policy in Brazil and Japan until 2003. Chapter 7 tries to show what can be learned from each
experience and what can be done in the future to improve fiscal policy in both countries.
2. FISCAL POLICY AND FISCAL DEFICIT: THEORY AND PRACTICE
Attention to fiscal problems encompassing public deficit and public debt is something that
has been object of study both in theoretical and empirical terms. It has also been affecting nearly all
countries either developed or developing ones particularly during the 1980s and in the final years of
the 1990s. As a consequence, what can be noticed worldwide is a shift to a more active and explicit
fiscal policy by using specific rules that include fiscal targets to be achieved, ceilings in expenditure
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that cannot be overdone and even sanctions and penalties to punish or impose restrictions to the
government. These policies, of course, have consequences not only to the economy but also in
relation to the political environment. So, it is fundamental to identify which factors count when a
sustainable fiscal policy would like to be used. In this case institutional framework, the way budget
is proposed and approved, the existence of legal constraints to control the deficit and external factors
effectively matters.
High and rising levels of public debt and large and persistent government deficits are matters
of concern due to the fact that could rise doubts about the soundness of currencies, represent a
pressure over general interest rates in the economic, could represent a threat to private investment
related to the crowding out effect, rise worry about future tax increasing, impact economic growth
and create a fear of producing a Leviathan state that could damage the private sector and political
freedom in the future.
Specifically after the world depression in the 1930s it was considered that public expending
financed by public debt could have a positive effect in the short term to increase aggregate demand
and help countries to overcome their economic problems. It is known as a Keynesian policy and it
has been considered responsible for the overcome of the global economy during the 1930s and after
the World War II until the 1970s when oil shock impacted the world economy. Moreover, public
debt used to be considered as a remedy to help economic recovery or at least minimize the impacts
resulted from recession and raises in unemployment.
But it seems that this policy has a limit in terms of effectiveness and sustainability. In the first
case it has been observed that when public deficit increases permanently it can harsh private
investment and reduce public confidence over government as soon as people realize that future tax
will have to be increased or default over payment of public bonds could be expected. Additionally,
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during many years it was considered that public debt was neutral in terms of economic
consequences. Due to this fact, politicians have been using public deficit as a way to promote
development by means of financing public works such as roads, house construction, power
generation, building of schools and other capital investment. The driven idea is that as soon as
economy recovers the expected effects over tax revenues should be enough to compensate increasing
in expenditure and generating at least enough resources to pay for the interest on the debt. But when
the investment has a poor rate of return the impacts over economy could be less than expected
without creating the multiplier effect to increase general outcome.
In the other hand, controlling permanent increase in public spending is largely influenced by
political will. Depending on the way electoral and legislate system is build it could be more difficult
or easier to introduce corrective measures to balance the budget in a sustainable basis. For example,
if the electoral system is based in a framework in which regional factors have an outstanding
importance, then eventually certain programs and projects with small economic impact could be
financed by the budget only to please political influence. In other words, not always political agenda
fits with economic needs and this could have serious consequences. In that situation sometimes it is
advisable to impose a legal barrier to discipline political behavior as for example establishing
ceilings over public debt and cost-benefit analyses for each project included in the budget.
Showing his concern about the question, Kirchgassner (2002) argues that:
“The fact that the public deficit and the (rising) public debt were one of major concerns of
the literature can on the one hand be explained by the rising public debt following the
acceptance of Keynesian policy prescriptions in the 1950s and 1960s. On the other hand
there was (and still is) a strong political belief that a large deficit indicates a mis-functioning
of the political system. The share of the government may be high, but as long as the citizens
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are willing to pay the corresponding taxes there is no reason to be concerned about this. If,
however, government spending exceeds tax revenue in the long run, there might be some kind
of tax illusion which can be exploited by a Leviathan government. In such a situation it
would make sense to search for (constitutional) constrains to tame Leviathan.”
In the same direction Hagen and Harden (1996) assert that: “A general characteristic of
modern finances is that government activities tend to be targeted at specific groups while being paid
for by the general taxpayer. The incongruence between those who benefit and those who pay implies
that policymakers systematically overestimate the net marginal benefit of increasing public spending
and, hence, tend to increase spending beyond the level that equates social marginal costs and
benefits.” This effect is generally known as the common pool problem of government budgeting that
result in excessive spending and deficits.
Poterba and Hagen (1999) conclude that there is an emerging consensus that persistent
budget deficits can be modeled as the result of a rational choice by self-interested political actors.
Deficits arise because the government’s general tax fund is a ‘common property resource’ from
which projects of public policy are been financed, much like the aggregate stock of a resource in
resource economics. At the same time, higher levels of transparency are associated with lower
budget deficits and fiscal institutions have important impact on fiscal policy outcomes.
Additionally, Hallerberg and von Hagen (1999) when considering political influence over
fiscal policy conclude that electoral systems of proportional representation are more prone to high
levels of public debt than majority systems, and in order to reduce public deficit it is not necessary to
change from a system of proportional representation to a majority system, if the appropriate
budgetary rules are implemented.
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“Commitment is appropriate for countries with a proportionality rule, which tends to
produce coalition governments. Delegation is the choice for countries with plurality rule or
other systems that produce single party governments (or are functional equivalent –
government where the same parties run together election after election, as in France and
Germany).”
Of course it is not the intention of this paper to propose any political reform in Brazil or
Japan, but it is very important understand that it could be easier or more difficult to implement fiscal
reforms depending on political framework and these factors should be considered when preparing
the strategies to be used to promote any fiscal policy.
In relation to the institutional framework Kirchgassner (2002) considers also that:
“1. Balanced budget rules and limitations of expenditure, taxes and deficits have in most
cases proved to be effective in cutting down public expenditure, revenue and debt. However,
at least in some cases this leads to a deterioration of the quality of the publicly provided
services, especially with respect to schooling.
2. Budgetary procedures matter, and the interaction between budgetary procedures and the
electoral system also matters: not all budgetary procedures have the same effect in all
electoral systems. They might be less effective than constitutional or statutory balanced
budget or tax and expenditure limitation rules, but in a situation where it is impossible to
introduce such rules they might show a feasible second-best way to reach fiscal
sustainability.
3. A ‘first-best solution’ might be to give the citizens direct political rights in the budgetary
process. As has been shown, citizens demand fewer public services and seem to force a
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sounder fiscal policy in systems with direct legislation than in purely parliamentary systems.
This results in a lower public debt per capita under direct democracy.
4. Though it is not overwhelming, there is some evidence that fiscal federalism itself leads –
ceteris paribus – to a smaller size of the government.”
Despite there is not a conclusive reaction among authors about effectiveness in relation to the
existence of constitutional rules limiting on borrowing, Bohn and Inman (1996) have founded that:
-
“balanced-budget constrains that apply to an audited, end-of-year fiscal balance are
significantly more effective than constraints requiring only a beginning-of-the-year balance;
-
all state balanced-budget rules are ultimately enforced by state’s supreme court. Those
states whose supreme courts are directly elected by citizens have ‘stronger’ constraints
compared to those states whose supreme court justices are political appointments of the
governor or legislature;
-
constraints grounded in the state’s constitution are more effective than constraints based
upon statutory provisions;
-
budget surpluses in strong balance-rule states are slightly less responsive to cyclical swings
in income and unemployment than are surpluses in states with weak requirements.”
Another issue that should be considered is that local or regional interest groups have a
significant political capacity to increase expenditure to favor their areas of influence. Doi and Hohori
(2002) found that empirical evidence indicates that lobbying activities of local interest groups was
exaggerated in the 1990s, which is the main reason why fiscal reconstruction did not perform very
well in the 1990s in Japan.
Moreover, budget institutions and budget process have also an important role as long fiscal
management is concerned. Hagen and Harden (1996) present a table suggesting three prototypes of a
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budget process at government stage. The first is a strategically centralized procedure, characterized
by the existence of a strong central power shaping the outcome of the process. The second type is a
guided decentralized procedure. It contains a weaker, but still significant central force and has
elements that guide the participants through the procedure. The third, a decentralized procedure has
no significant centralizing mechanism. It seems that as more centralized budget process is, more
easily government can manage its fiscal policy.
Table 2: Classification of Budget Structures
Step
Event
Strategically
Centralized
G1
Budget Targets
Type A: Prime
and Guidelines
Minister or Finance
Minister
Type of Procedure
Guided
Decentralized
Decentralized
Strong but alterable
Cabinet no biding
guideline adopted by
target adopted
Cabinet based on
proposal or information
by Finance Minister
Type B: binding
target from
collective
bargaining
G2
Budget Bids
Spending Ministries Spending Ministries
Spending Ministries
G3
Compilation of
Finance Minister in Finance Minister serving Finance Minister,
Draft
bilateral negotiations as intermediary between simply collecting bids
spending ministers and
Cabinet
G4
Reconciliation
Prime Minister or
Senior Cabinet
Cabinet
Senior Cabinet
Committee or Cabinet
Committee
G5
Finalization
Cabinet
Cabinet
Cabinet
Source: Table 3: Structure of government Stage in Hagen and Harden (1996), pp. 6.
In a similar approach, Woo (2003) demonstrates, by a cross-country analysis involving 57
developed and developing countries, that: sociopolitical instability, income inequality, a large size of
the cabinet, and the lack of central authority in the fiscal decision-making process are strongly
negatively associated with the public surplus. While proportional parliamentary regimes tend to run
larger deficits, government weakness or regime type does not seem to be consistently associated
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with deficits. Also the budgetary institutions and government institutions in general matter for the
fiscal stance.
Moreover, Giavazzi and Pagano (1990) are specially concerned about ‘confidence crisis’
defined as a critical change in expectations about the behavior of policy-makers, capable by itself of
precipitating a policy regime shift or at least of increasing the chances that it will take place.
According to them, what the models reveal is that the probability authorities will withstand a
confidence crisis is critically affected by the extent to which they have to appeal to the market at
each given date to roll over public debt. This depends on three factors: the amount of debt
outstanding, its average maturity and the time pattern of maturing debt. In a situation where the stock
of debt is high, the average maturity is short and maturing debt is concentrated at few dates, the
Treasury has to borrow huge amounts from the market at those dates. If on one of those dates a
confidence crisis occurs, the Treasury finds itself in the critical situation of refinancing a large
portion of its debt on unfavorable terms. This leads the public to expect a higher probability of a
regime shift if a confidence crisis occurs.
Of course, one fundamental factor is related to the development of the financial system. It is
evident that if the country has a strong and reliable financial system that is able to finance public
debt, it is easier for the government promotes a sustainable fiscal policy. In this case, it is relevant
the size of the internal savings, the attractiveness of its interest rates and the existence of a well
developed secondary market in which internal and external investors can guarantee liquidity and
protection in relation to exchange rate changing and other macroeconomics movements. In this
regard, in its 2003 annual report, World Bank asserted that financial systems that develop unevenly
and lack transparency and proper regulation are more vulnerable to financial shocks and prone to
distress.
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Moreover, Schmidt-Hebbel and Serven (1997) in a study for the World Bank have
identified that long-term saving rates and growth rates are positively correlated, long-term saving
rates and income levels are positively correlated, long-term saving and investment ratios are
strongly positively correlated and there is no robust association between long-term saving rates and
income inequality. In other words:
“Ensuring an adequate supply of savings is also a central policy objective for reasons other
than its direct growth impact. A national saving ratio broadly in line with the economy’s
investment needs is a key ingredient to reduce countries’ vulnerability to unexpected shifts
in international capital flows. As illustrated by Mexico’s recent experience, low domestic
saving can exacerbate the likelihood and negative consequences of sudden capital outflows
that may be driven by factors such as herd behavior or self-fulfilling expectations on the
part of international investors. Under increasing international financial integration, high
domestic saving contributes to ensure macroeconomic stability, itself a powerful growth
factor.”
Finally, it should be mentioned that external factors have important role in relation to fiscal
policy particularly if the country has a significant part of its debt financed by external investors.
During international crisis (for example Mexico - 1994, Russia - 1996, Asia - 1997, Brazil - 1999
and Argentina - 2000) countries that have shown a healthy fiscal situation were more prepared to
deal with the consequences in terms of monetary and exchange rate policies and could manage more
properly the outcomes. For these reasons, International Monetary Fund, World Bank and other
international organizations usually impose a severe commitment in relation to fiscal control over
expenditures and management of the public deficit. It could be noticed as well as that huge amount
of financial resources generally are necessary to cope with interest payments over previous debt to
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allow countries avoid default and these factor generally have very significant impact in deficit and
debt management. In these circumstances, size, composition and maturity of the debt is very
important.
In relation to the legal framework to support sound fiscal policies adopted by many countries,
New Zealand took the leading position in 1994 when has passed the so-called Fiscal Responsibility
Act that has began to establish specific numerical targets consistent with the principle that control
over public debt should be maintained at least by a certain period of time. The main achievements
were improving transparency in relation to fiscal data to the Parliament and the society as a whole,
control public deficit and increase reliability in relation to the sustainability of the fiscal policy. In
1996, due to its fiscal crisis, Sweden has passed a Fiscal Budget Act setting nominal expenditure
limits and maintaining general government surplus of 2% of GDP. In 1997, United Kingdom
adopted a golden rule that do not allow that government borrow to fund current spending and in
1998, Australia has established a Charter for Budget Honesty, that requires the Government to
prepare an annual fiscal strategy statement outlining long-term fiscal policy objectives and fiscal
targets for the following three years. The same has been imposed by the Maastricht Treaty in 1992
for the countries in the Euro area establishing a 3% of GDP ceiling on general government net
borrowing, a 60% of gross government debt-to-GDP ratio norm and a close to balance or surplus
target. Poland has been even more restricted by approving a constitutional target setting a limit of
60% of GDP for total public debt showing great commitment in relation to its intention in
maintaining fiscal debt permanently controlled1.
All these aspects could be considered important factors when appraising public fiscal
management effectiveness because it has been demonstrated that the sustainability and the capacity
1
Tanaka, Hideaki (2003) Fiscal Consolidation and Medium-Term Fiscal Planning in Japan. Appendix Table IV.A.1
Changes in the fiscal framework since the 1990s.
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of implementing rigid fiscal policies depends on various conditions. But it is also true that each
country has its own historic and economic reality and it is necessary understand which factors are
more important. This paper will show which factors have a more strong influence in Brazil and
Japan and identify how the policies have been influenced by them. The factors considered as
relevant are:
-
institutional factors: empirical evidence demonstrates that institutions matter in terms of
budgetary process that are more influencing in controlling public deficit;
-
medium voters positions: evidences demonstrate that direct participation on public budget
result in better fiscal structure and lower fiscal deficit or lower tax increase;
-
fiscal systems in federal structure: federalism leads to a smaller government structure, so
more effective in fighting public deficit and increase in public debt;
-
transparency: democratic states are more subjected to public pressure in a way to avoid
public over-expenditures that is not considered appropriate or consistent with economic
growth or some social targets used to justify the deficit;
-
legislation: it has been shown that constitutional provision establishing rules to promote
budgetary equilibrium are more effective than statutory rules;
-
centralization and decentralization: empirical evidence shows that centralization of budget
process has positive effects in relation to increasing control over public deficit and public
debt;
-
electoral system: proportional representation have less commitment to public deficit than
majority systems because representatives tend to be more pressured by their constituencies
and have more difficulties to increase taxes or reduce spending;
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-
external factors: international crisis and pressure of other countries or international
organizations play an important role in relation to the adoption of a more restrictive fiscal
policy;
-
presidential and parliamentary systems – it is considered that presidential systems used to
be more effective in controlling public deficit than parliamentary systems;
-
financial system – it is relevant understand the strengths and weaknesses of the financial
system in financing public debt including size of internal savings and capacity to mobilize
external resources.
3. BRAZIL: FISCAL POLICY FROM 1997 UNTIL NOW
In 1994, Brazil implemented a monetary reform to control hyperinflation. These measures
were known as ‘Real Plan’ (in a reference to the new denomination of the currency that since than is
‘Real’) and has controlled inflation bring it from a level of more than 2000 % per year to an inflation
of less than 10% per year. But to allow maintain stability of the currency and a sustainable economic
growth and improve progressively living standard of the population, it was necessary to conduct
other structural reforms. The second phase was denominated ‘Fiscal Stability Program’ that included
among other measures:
-
re-scheduling of state and local government public debts;
-
reform and privatization of state banks;
-
reform in public accounting by recognition of hidden liabilities;
-
measures to control public debt/GDP ratio in 44%;
-
increase in transparency of budget and public finance;
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-
maintain fiscal primary surplus to achieve sustainability in public debt;
-
reduce expenditure by means of an institutional reform;
-
improve control over budget and revitalize public planning as an important tools for
promoting medium and long-term economic and social development; and
-
increase revenues particularly to cope with pension system disequilibrium.
At the same time, in November 1998, the Government of Brazil requested support from the
International Monetary Fund for an amount equivalent to SDR 13,024.80 million (US$ 18,032.21
million), in the form of a stand-by arrangement (SBA) for a period of 36 months to deal with
shortage of international credit after Mexican, East Asian and Russian crisis.
In its letter of intentions send to IMF in March 2000, it was considered that the year 1999
marked a major turnaround in Brazil's fiscal performance. The targeted shift of the primary balance
of the consolidated public sector from near-equilibrium in 1998 to a surplus equivalent to 3.1 percent
of GDP in 1999 was achieved against a background of declining domestic demand and imports. The
government also made significant progress in its structural fiscal reform agenda, which were
considered essential to ensure the sustainability of the fiscal adjustment over the longer term.
One of the objectives assumed by the Brazilian government in relation to the IMF was to
enact the Fiscal Responsibility Act in 2000 as a clear demonstration of commitment in relation to
fiscal stability in the medium and long term.
The fiscal imbalance, or expenses systematically higher than the revenues, has been
prevailing in the Brazilian public administration lately. The economy was adversely affected by the
consequences thereof, the impacts of which, in some cases, last for more than one generation. The
uncontrolled inflation until Real became effective in 1994, the considerably high interest rates, the
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significant public indebtedness, and the high tax burden, when compared to other countries in Latin
America, are some of said consequences.
This reality led the public finance to such a limiting situation that meeting the basic needs of
the people such as health, education, housing, sanitation, etc, became a difficult task, adversely
impacting the poorer classes of the society, which suffer the consequences of the lack of
governmental investments in those areas.
Table 3: Main Events in Fiscal Policy – Brazil – 1994-2003
Year
Main Events
1994
July
Stabilization macroeconomic plan was enacted. So called “Real Plan” it resumed
hyperinflation in the country
1998
September
Ministry of Finance presents the Fiscal Stability Program to promote structural
Reforms
November
Brazil sign a stand-by agreement with the International Monetary Fund
for 36 months
1999
January
End of controlled exchange rate to a free exchange rate system
2000
May
“Fiscal Responsibility Act” was enacted
October
“Fiscal Responsibility Sanctions Act” was approved by Congress
2002
November
Brazil renewed its stand-by agreement with the IMF until the end of 2004
2003
September
Social Security Reform was approved by Congress
December
Tax Reform was approved by Congress
In this scenario, the Fiscal Responsibility Act (LRF), approved by Brazilian Congress in
2000, represents an instrument to help the government with the management of the public resources,
according to a set of clear and accurate rules applied to all of the public resource administrators and
in all spheres of the government, concerning the administration of the public revenues and expenses,
the indebtedness and the administration of the common wealth. Additionally, the Law consolidates
the transparency of the administration as a social control mechanism, through the publication of
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reports and statements of the budgetary execution, explaining to the taxpayer how the resources
she/he makes available for the officials are used.
Among the set of rules and principles set forth in the Fiscal Responsibility Act, some of them
must be emphasized:
•
personnel expense limit: the law provides limits for this kind of expense in relation to the
current net revenue for the three Branches (Executive, Legislative and Judiciary) and for each
governmental level (Federal, 27 States, and 5,500 Municipalities). For the federal government the
limit is 50% and for the State and Municipalities the limit is 60% in relation to the current net
revenue;
•
public debt limit: the limit is determined by the Federal Senate upon a proposal from the
President. Nowadays is 1.5 times annual revenue for municipalities, 2.0 for States and 3.0 for federal
government;
•
definition of annual fiscal goals: it should be identified annually for the three following fiscal
years;
•
compensation mechanisms for permanent expenses: the official may not create a
continuing expense (for more than two years) without indicating a source of revenue or reducing
another expense; and
•
mechanism to control the public finances in election years: the Law prohibits credit
operations from being contracted through advance of approved budgeted funds in the last year of
term of office, and also does not allow increase of personnel expenses during the 180 days prior to
the end of the office.
The compliance with these new rules is allowing a permanent tax adjustment in Brazil, once
the fiscal discipline introduced by the LRF is enabling an improvement in the financial condition of
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the entities of the Federal government. It is expected that this will increase the availability of
resources for investments in social and economic development programs in the future.
THE PLANNING PROCESS2
The Budget Directive Law
The Budget Directive Law is annually prepared and stipulates the general rules for the
preparation of the Budget of the next year. The Attachment of Fiscal Goals is included in said Law,
and, among other issues, it must contain:
a) the annual goals, in current and constant values, related to revenues, expenses, nominal and
primary results and public debt amount, for the fiscal year they refer to and for the two subsequent
years, which, in practice, are triennial goals;
b) the evaluation of the achievement of the goals of the previous year;
c) the evolution of the net equity, the origin, and the application of privatization resources, if any;
and
d) estimation and compensation of the fiscal waiver and the margin of expansion of the mandatory
continuing expenses.
The Annual Budget Law
The bill of the Annual Budget Law for the Federal Government, States and Municipalities are
prepared by observing the guidelines and priorities set forth in the Budget Directive Law as well as
the parameters and limits stipulated in the Fiscal Responsibility Act.
2
Brazil (2002), Ministry of Planning, Budget and Administration. Fiscal Responsibility Law: Primer on the Fiscal
Responsibility Law. Brasilia. At www.planejamento.gov.br website.
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The Annual Budget Law contains attached thereto, the statement confirming the
compatibility of the budget with the objectives and goals defined in the Attachment of Fiscal Goals
of the Budget Directive Law.
The Annual Budget Law must contain the contingency reserve, defined as percentage of the
current net revenue, necessary to cover expenses not provided for in the Law, such as public
calamity.
The purpose of the Fiscal Responsibility Act is to strengthen the budgetary process as a
planning tool, avoiding undesirable imbalances. Additionally, the Act intends to be an instrument of
representation of the officials’ commitment to the society.
Revenues and Fiscal Waiver
The Federal Government, the States and the Municipalities are responsible for implementing,
stipulating, and effectively collecting all of the levies under their constitutional competence. It
means that each sphere of the government will have to properly explore its tax basis and,
consequently, be able to estimate its revenue. This facilitates the compliance with the fiscal goals
and the allocation of revenues to different expenses.
Expenses and Compensation Mechanisms
In addition to the expenses provided for in law, there are some that the officials may incur
due to the creation, expansion, or improvement of the government action. However, according to the
Fiscal Responsibility Act, they must be accompanied by an estimation of the budgetary-financial
impact for 3 years, and by a statement confirming their compatibility with the Fiscal Responsibility
Act and their observance of the Annual Budget Law.
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Personnel Expenses Limits
In the federal sphere, the maximum limit to be spent with personnel is 50% of the Current
Net Revenue. In the States and Municipalities, the maximum limit to be spent with personnel is 60%
of the Current Net Revenue.
Deviation Corrective Mechanisms
If the total personnel expense exceeds ninety-five percent (95%) of the limit, the Branch or
body responsible for the excess is prohibited from performing the following:
•
granting benefit, increase, adjustment, or correction of compensation for any purpose;
•
creating office, job, or function;
•
changing career structure, implying expense increase;
•
providing public offices, admission, or hiring personnel for any purpose, except for the
replacement due to retirement or death of the workers of the educational, health and security
areas;
•
overtime, except in the situations set forth in the Budget Directive Law.
The Public Debt
The Fiscal Responsibility Act defines concepts and rules to be observed by all Federal
Governmental entities as to public debt, security debt, credit operations and guarantees. The limits to
the debt amount (inventory) will be established based on the consolidated debt of the Federal
Government, States and Municipalities, which includes the debt of the direct administration,
autarchies, foundations, and dependent state companies – always in relation to the Current Net
Revenue.
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Credit Operations
The Ministry of Finance check the compliance with the limits and conditions of the execution
of credit operations of the Federal Government, States and Municipalities, including those of the
companies directly or indirectly controlled by them. The execution of credit operations is subject to
the observance of the Annual Budget Law, additional credits or specific law, as well as to the
compliance with the limits and conditions set forth by the Federal Senate. According to the Fiscal
Responsibility Act, the “Golden Rule” must always be observed. Said rule stipulates the following:
contracting of credit operations in each fiscal year is limited to the amount of the capital expense.
Granting of Guarantees
The Federal Government, States, Federal District and Municipalities may grant guarantees in
internal or external credit operations, since they observe the rules related to the contracting of credit
operations. Regarding the Federal Government, the limits will be established by the Senate.
Transparency and Social Control
The transparency in the fiscal administration is the main instrument for the social control. In
the preparation, approval and implementation of the Budget Directive Law and of the Annual
Budget Law, as well as in the annual rendering of accounts, transparent procedures will be used, that
is: publication and full disclosure of proposal summaries laws, and rendering of accounts, including
through electronic means, indicating the objectives, goals, expected and verified results.
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Scope and Bookkeeping
Applicable to all federal, state and municipal public administration, in addition to autarchies,
foundations and state companies dependent on resources from Federal, State and Municipal
Treasuries;
•
all expenses will be registered on an accrual basis;
•
Social Security revenues and expenses will be registered in accounts separated from the others;
and
•
General rules for consolidation of public accounts will be defined by a Fiscal Administration
Council, or, while it is not constituted, by the Federal central accounting agency.
Budgetary Execution Summarized Report
The Fiscal Responsibility Act provides that the Budgetary Execution Summarized Report
must be published by all Branches and by the Public Prosecution up to thirty days after the end of
each two months.
Fiscal Administration Report
At the end of each four months, the Fiscal Administration Report will be issued and signed
by all leaders of the Branches and bodies of federal entities. The report will be published up to thirty
days after the end of the period it refers to, with full public access, including through electronic
means. The noncompliance with the stipulated terms will prevent, until the situation is regularized,
the Federal Government, States and Municipalities from contracting credit operations, except those
related to refinancing of the adjusted principal of the respective security debt.
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Inspection
Checking the observance of the rules and limits of the Fiscal Responsibility Act is the
responsibility of the Legislative Branch (directly or in collaboration with Audit Courts) and of the
Internal Control System of each Branch and Public Prosecution.
The Audit Courts will inform the Branches, Federal governmental entities or bodies, when
they verify that the expense level is close to the limits established by the Fiscal Responsibility Act.
The Audit Courts are also responsible for checking the calculations of the limits of the total
personnel expense of each Federal governmental entity Branch.
Institutional and Personal Sanctions
In the event of noncompliance with its rules, the Fiscal Responsibility Act establishes several
institutional and personal sanctions.
Examples of institutional sanctions:
•
suspension of voluntary transfers for the government that does not implement, stipulate and
collect the taxes under its competence;
•
regarding personnel expense limits, if the rules of the Fiscal Responsibility Act are not observed,
and while the adjustment is not accepted, or should there be excess in the first four months of the
last year of term of office, the following will be suspended:
- voluntary transfers;
- obtaining guarantees;
- contracting of new credit operations, except for debt refinancing and reduction of personnel
expenses.
Also regarding personnel expense limits, it is legally void the act that:
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BRASIL - MINISTÉRIO DA FAZENDA
- does not fulfill the compensation mechanism (permanent revenue increment or permanent expense
reduction);
- does not comply with the legal limit of commitment applied to expenses with inactive workers; and
- increases the personnel expense 180 days prior to the end of the term of office.
•
in relation to debt inventory limits, once the term to return to the maximum limit has expired and
while the excess remain, voluntary transfers from the Federal Government or from the State may
not be received;
•
for irregular credit operations, while the deviation corrective mechanisms (operation cancellation
and reserve constitution) are not executed, receiving voluntary transfers, obtaining guarantees,
and contracting new credit operations is prohibited, except for debt refinancing and reduction of
personnel expenses;
•
in the granting of guarantees, should the correction mechanisms and their terms not be observed,
the entity whose debt has been borne by the Federal Government or by the State will have its
access to new credits or financing suspended until the debt is paid.
In addition to the institutional sanctions, it has been established personal sanctions, set forth
in a statutory law bill called “Fiscal Responsibility Crimes Act”, which determines that the officials
may be personally held responsible and punished for their acts, by being removed from their offices,
prevented from occupying public offices, going to prison and paying fines.
Society’s Contribution to the Success of the Fiscal Responsibility Act
The Fiscal Responsibility Act defines how the public accounts will be consolidated and
disclosed to the population. It creates the Fiscal Administration Report, which shall submit, in a
simple and objective language, the accounts of the Federal Government, each State and
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BRASIL - MINISTÉRIO DA FAZENDA
Municipality. People will have full access, including through electronic means. From that time on,
the society is also responsible for demanding the necessary actions from the officials and judging
whether they are proceeding responsibly with the fiscal administration.
4. JAPAN: FISCAL POLICY FROM 1997 UNTIL NOW
Japan enjoyed a relatively sound fiscal position with a budget surplus of 2% of GDP in 1990.
With the burst of bubble economy, however, revenue felt, recession began and government tried to
enlarge aggregate demand by means of tax reduction, increase spending in public works and current
expenditure in a typical Keynesian counter-cyclical approach.
In 1994, a major tax reduction was carried out with the gap financed by the deficit-financing
bonds. The government initiated various economic measures including a series of large-scale public
works programs from 1992 to 1995.
But on the other hand it became to be clear that government should control increasing budget
deficit because population aging will produce important effects in the long-term and it could
undermine Japanese economy and society in the future if it is not found a way to finance pension
system in a sustainable basis.
In 1997, government decided to raise the consumption tax rate from 3% to 5% and initiate a
thorough examination and revision in expenditure. To enable fiscal consolidation, the Fiscal
Structural Reform Act - FSRA was enacted in 1997. The main targets of such a law were:
-
fiscal deficit – the fiscal deficit as a percentage of GDP, currently around 6%, should be
brought down to 3% or less by FY 2003 (section 1, article 4, chapter 1);
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-
special deficit-financing bond issues – the amount of special deficit-financing bond
issuance should be reduced every fiscal year and its issuance should be terminated by
FY2003 (section 2, article 4, chapter 1);
-
spending limits on major programs – for fiscal year 1998 through 2000 (defined as the
intensive reform period), the magnitude of expenditures in major programs is subject to a
numerical “Cap” (chapter 2); and
-
guideline for fiscal policy – fiscal policy will be conducted in such a manner that sum of
taxes, payroll contributions, and fiscal deficit as percentage of national income will not
exceed 50% (section 1, article 6, chapter 1).
However, after the enactment of FSRA, Japanese economy continues to suffer from bad
performance (deflation, recession and raise in unemployment), some financial institutions went in
bankrupt and Asian countries faced a severe financial and economic turmoil in 1997/98. As a result,
government initially proposed an extension in the target date by two years and then in 1998 decided
to suspend the reform for a while until economic and financial conditions improve.
Since then fiscal reform has been mentioned as a political target including the establishment
of targets and measures to tackle the problem. For example, in 2001, government has prepared a so
called “Structural Reform of Japanese Economy: Basic Policies for Macroeconomic Management”
that encompassed:
-
promotion of privatization, deregulation, assistance to business entrepreneurs and fiscal
reform;
-
resolve bad loans problems;
-
establishment of corporate reconstruction funds;
-
improve unemployment insurance and retraining;
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-
expect the Bank of Japan to make timely decision on quantitative credit easing;
-
limit new issue of Japanese government bonds to 30 trillion yen from FY2002;
-
turn primary balance of national budget into surplus; and
-
achieve economic growth led by private sector demand.
In 2002, government released a new report in which it was established that it could be
expected a balance surplus in the early 2010s.
Unfortunately, bad economic performance does not allowed government to achieve its target
of maintaining a limit in government bonds issuance at 30 trillion yen level per year.
For 2004, it seems that perspectives are better due to economic recovering. So far
government is demonstrating commitment to put fiscal reform ongoing by means of privatization,
reduction over issuance of public bonds and restriction in relation to financing new public works.
Tanaka (2003) summarizes the main developments in public management in Japan as
follows:
Table 4: Main Events in Fiscal Policy – Japan – 1995-2003
Year
Main Events
1995
June
The Decentralization Promotion Law was put into effect
1996
November
The Administrative Reform Council was established
December
“Fiscal Restructuring Targets” decided by the Cabinet
1997
June
“Consolidation and Rationalization Plan of Public Corporations” was
adopted by the Cabinet
November
The Fiscal Structural Reform Act was enacted
December
The final report was released by the Administrative Reform Council
1998
May
The Fiscal Structural Reform Act was amended
June
The Basic Law on the Administrative Reform of the Central Government
was put into effect
December
The Fiscal Structural Reform Act was suspended
1999
March
“Second Decentralization Action Plan” was decided by the Cabinet
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2000
April
2001
January
April
June
December
2002
January
June
The National Public Service Ethics Law was put into effect
The Administrative Reform of the Central Government was put into effect
Independent Administrative Institutions (IAIs) were established
The law Concerning Access to Information Held by Administrative Organs
was put into effect
“Structural Reform of the Japanese Economy: Basic Policies for
Macroeconomic Management” was decided by the Cabinet
“Consolidation and Rationalization Plan of Public Corporations” was
decided by the Cabinet
“Structural Reform and Medium-term Economic and Fiscal Perspective” was
decided by the Cabinet
“Basic Policies for Economic and Fiscal Policy Management and Structural
Reform 2002” decided by the Cabinet
2003
January
FY2002 revision of “Structural Reform and Medium-term Economic and
Fiscal Perspective”
Source: Tanaka (2003) Box 1. Chronology of Main recent developments in public management
But that are some weaknesses in institutional aspects related to the budget that has been identified
by Wright (1999):
“Central government budgeting in Japan is complex, and the processes of making budgets
opaque. Besides the main (General Account) budget, there is the Fiscal Investment Loan
Program (FILP), the so-called second budget, and the budgets of 38 special accounts with
hypothecated revenues and specific expenditures. Each year there is at least one, sometimes
several supplementary budgets. In addition, there are 91 public corporations, part of whose
capital expenditures and trading losses are defrayed from the main budget and FILP. Social
security contributions are not counted as general revenues, but paid into separate special
accounts, which are, however, partly subsidized by transfers from the main target. There are
annually, numerous complex cash flow transfers of revenues and expenditures between the
main budget, supplementary budgets, and FILP and between them and the 38 special
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accounts and the public corporations. There is a considerable potential for the manipulation
of those transfers to relieve spending pressures on the main budget.”
In this sense, however, there is one important characteristic of the Japanese government that
should not be forgot related to the existence of a very particular system to finance public expenditure
which is associated to 38 special accounts and 11 government-affiliated agencies accounts that
supports a so called Fiscal Investment and Loan Program – FILP responsible for managing financial
resources equivalent to more than 25% of GDP. According to Shibata (1993), FILP is considered the
‘Second National Budget’ and has represented a key tool to finance development programs and
public debt due to the fact that government has access to huge amounts of money that come from
households savings and revenues received by public pensions programs paying small amounts of
interest rates, enjoying credibility and public support in a long-term maturity basis.
In addition to tax revenues, postal savings, public pension funds and life insurance funds are
all important financial sources within the national scheme. These financial sources can then be used
for specific policy objectives by making loan and investing in organizations that promote specific
policy objectives. The FILP was constructed to foster investment and loan money. The FILP
provides financing for the investments of government enterprises, including some local
governments. It provides also loans to selected private businesses that are regarded as having special
importance for the purpose of development. A portion of the funds are devoted to purchase public
bonds directly from the general account. To have an idea of the importance of the Trust Fund
Bureau, more than 34% of the government bonds in 1990 were in their hands which represent the
larger holder of public bonds in Japan. It means that the Japanese government counts on a permanent
and reliable source to finance its debt representing an outstanding strength in terms of fiscal
management.
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Table 5-Japan-Holding Ratios of Government Bonds – 1990 -2003 - %
Trust
Fund
Bank of
Financial Securities
Bureau
Japan
Institutions
A
A1
B
C
D
1990
38.5
34.6
5.1
30.6
2.6
1991
41.1
37.4
4.8
28.2
2.9
1992
39.5
36.4
5.2
30.3
2.6
1993
37.3
32.1
6.8
30.3
3.6
1994
34.4
27.4
7.9
30.6
4.3
1995
35.9
27.5
7.8
31.2
2.6
1996
35.8
26.0
10.5
26.8
2.8
1997
40.4
29.5
11.2
22.8
1.8
1998
42.2
29.8
10.6
21.4
2.3
1999
36.7
21.7
16.6
23.3
1.7
2000
32.3
18.3
14.9
30.6
2.1
2001
35.2
16.2
12.6
22.4
2.2
2002
14.4
13.3
13.4
22.4
1.4
2003
11.2
10.8
12.9
24.2
1.4
Source: Ministry of Finance – Japan
Year Government
Others
E
23.2
23.0
22.4
22.0
22.8
22.5
24.1
23.8
23.5
21.7
20.1
27.6
48.4
50.3
Total
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
5. BRAZIL: RESULTS OF ITS FISCAL POLICY
It is clear that since the enactment of the Fiscal Responsibility Act, Brazil improved
significantly in terms of its fiscal management and control over public debt and public deficit. But
some other factors are important as well.
Brazilian budget system is very centralized in the Ministry of Planning and include a medium
term planning of four years (Pluriannual Plan), a law establishing clear limits to the presentation of
the budget (Budget Directive Law) and a consolidated budget (Budget Annual Law) encompassing
all expenditure and revenues of the direct and indirect administration including funds and
investments of the public enterprises, giving an overall pictures about the federal public fiscal status.
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BRASIL - MINISTÉRIO DA FAZENDA
Relevant legislation has been approved in the last 5 years, allowing the government,
particularly the Ministry of Finance, to establish very sound and reliable fiscal targets. This kind of
legislation is helping government to fight against political tendency to increase expenditure or relax
taxation, showing that on the medium and long term it will permit that country attract more
international capital and avoid risks of being influenced by eventual international financial turmoil.
Moreover, as international confidence increases, there is a tendency to finance the public bonds in a
more reasonable basis by reducing interest burden that will allow further increase in spending in
social programs.
Another positive characteristic is associated with transparency. Public accounts and the
budget itself in all levels of government are very open, timely and transparent giving to the public,
the media and the members of Parliament and parties to appraise public performance permanently. It
could be considered that country has achieved a remarkable position in relation to the openness of its
public accounting.
Figure 3: Brazil - Net Public Debt and Primary Surplus in Relation to GDP % – 1995-2003
Net Public Debt x GDP
Public Sector Consolidated Fiscal Result
15%
% GDP
deficit
10%
5%
0%
superavit
dez/95
dez/96
dez/97
set/98
dez/98
dez/99
-5%
-10%
Nominal
Primary
33
Juros nominais
dez/00
dez/01
mai/02
BRASIL - MINISTÉRIO DA FAZENDA
However, there are some weaknesses that should be considered in future improvements in
legislation and institution structuring. The first one is related to the direct participation of the
population in the discussion and preparation of the budget. Because the people is very far from this
kind of intervention, sometimes it is difficult to involve the society in the construction of general
solutions to tackle, for example, the financing of the pension system, the tax system, the selection of
public works, and other important issues that do not seems to be clearly understood as a political and
social problem.
Another important negative characteristic is related to the political and electoral system.
There are many parties in Brazil, and it is quite difficult to understand which are the main
differences and similarities among them. In other words, it is not clear which are the ideologies of
each participant in the political arena. As a consequence, it is very difficult to build up a consensus
in relation to the policies that has to be supported by the coalision government and discussion and
approval of any kind of legislation consume more time and undermine public authority much more
than it should be expected.
It is possible to resume Brazilian main characteristics of its institutional, political and
legislation framework as follows:
Table 6: Brazil – Main Characteristics of Fiscal Framework
Item
Characteristic
Institutional
Budget is proposed by the Ministry of Planning in consultation with the
Factors
Ministry of Finance. Spending Ministries has to observe ceilings established
by MP and MOF. Parliament cannot increase total budget
Medium
Voters There is no direct participation of voters in the definition of the budget. Only
Positions
few and small local authorities use or consult population for selecting projects
Fiscal System in Recent tax reform has enlarged the power of federal government and reduced
Federal Structure
tax fighting among states and municipalities
Transparency
Fiscal Responsibility Act has imposed a large degree of transparency both to
proposed budget and ex-post implementation accounting. Many reports has to
be published by the three levels of government
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BRASIL - MINISTÉRIO DA FAZENDA
Legislation
Constitution and Complementary Law establish rules to enhance fiscal
control
Centralization and There is an important centralization over budget execution and fiscal and
Decentralization
financial control in all levels of government. MOF can control expenditure
based on real cash flow.
Electoral System
It is adopted a proportional system of voting. Pluralism in number of parties
has not allowed building majority without coalision among many parties.
External Factors
International crisis have impacted balance of payment and currency. Brazil is
under IMF supervision and financial support.
Presidential
and The System of government is Presidential. The President is both the chief of
Parlamentary
State and Government but cannot dissolve Parliament.
Financial System
Internal Savings are not large enough to finance public debt and the interest
rates are very high representing a significant weakness.
The Brazilian government has announced a target of 4.25 % of GDP for the primary surplus
of the non-financial consolidated public sector (general government) in 2003. This target aims at
ensuring a favorable dynamic for the public-debt-to-GDP ratio, taking into account the fiscal
realities and the social priorities of the country. The commitment with the fiscal target, together with
the reform of key aspects of the economy, are the cornerstone for vigorous economic growth and
price stability in coming years, freeing the country from any fiscal trap. Fiscal strength helps reduce
interest premia and rates. Actions to address the fiscal problem will be accompanied by reforms
aiming at improving access to credit, and expanding investment, employment and income. These
goals, together with an affordable, efficient and targeted social safety net are at the core of the new
economic policy.
The Executive Board of the International Monetary Fund – IMF (2004) has issued the
following appraisal about the Brazilian performance under an SDR 27.4 billion (about US$40.2
billion) Stand-By Arrangement that is under implementation since 2002:
“The recovery of growth owes much to the sound economic policies pursued by the
government. The solid fiscal outturn in 2003 and the government’s commitment to a strong
fiscal stance in 2004 have ensured that debt dynamics remain on a steady downward path.
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BRASIL - MINISTÉRIO DA FAZENDA
The cautious response of monetary policy to the monthly inflation rates seen over the past
three months has been appropriate and demonstrates the authorities’ commitment to
ensuring that inflation hits the mid-point of the target range in 2004.”
In relation to transparency, the Ministry of Finance is publishing annually both its strategic
report about debt management and the results from previous year. It is planned to refinance R$ 252.9
billion (US$ 86.5 billion) in 2004 with a net reduction of R$ 73.5 billion (US$ 25.1 billion) that will
come from the primary surplus. It gives to the financial system an important instrument to plan their
strategy in relation to the use of public bonds as a financial protection and identify clearly the size of
the effort in relation to the fiscal policy. It was also established the following targets related to the
types of indexes used to establish the interest rate to remunerate the public bonds:
Table 7: Brazilian Debt Management Plan 2004
Description
December 2003 Minimum 2004
Federal Public Bonds in Market billion R$
965,8
1,080
Average maturity – months
39
40
% to be negotiated in 12 months
30.7
26
Maximum 2004
1,150
45
32
Composition of Public Bonds by type of
interest rate index
Fixed rate
9.5
9
Central Bank prime rate
46.5
39
Exchange Rate
32.4
24
Consumption Price Index
10.3
12
Other Indexes
1.3
1
Source: Ministry o Finance – National Treasury – Annual Plan of Financing 2004
19
47
30
17
3
Finally, if it is used the Domar’s test for fiscal sustainability, it is possible to conclude that
Brazilian fiscal situation is close to the sustainability because it has been possible to maintain a
primary surplus in a consistent basis during the years, as it could be seen in table 8 and figure 4. Now
it is necessary to control the level of increase in the debt/GDP ratio in a way to be smaller than the
level of GDP growth.
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BRASIL - MINISTÉRIO DA FAZENDA
Table 8 - Brazil: Debt/GDP Ratio and Primary Surplus - 1983-2003
Debt/GDP
Primary
Year Increase
Year
Ratio
Surplus/ GDP
Debt/GDP Ratio
%
%
%
1983
51.5
1.70
1984
55.8
4.20
8.35
1985
52.6
2.60
-5.73
1986
49.4
1.60
-6.08
1987
50.3
-1.00
1.82
1988
46.9
0.90
-6.76
1989
40.2
-1.00
-14.29
1990
40.6
4.60
1.00
1991
37.9
2.71
-6.65
1992
37.2
1.57
-1.85
1993
33.0
2.19
-11.29
1994
29.2
5.21
-11.52
1995
30.5
0.27
4.45
1996
33.3
-0.09
9.18
1997
34.3
-0.95
3.00
1998
41.7
0.01
21.57
1999
48.7
3.23
16.79
2000
48.8
3.46
0.21
2001
52.6
3.70
7.79
2002
55.5
4.01
5.51
2003
58.7
4.32
5.77
Source: Ministry of Finance - National Treasury Secretariat
Figure 4: Brazil – Primary Surplus and Government Debt – 1983 - 2003
Brazil - Primary Surplus/GDP x Public Debt/GDP % - 1983-2003
6.00
5.00
Primary Surplus/GDP %
4.00
3.00
2.00
1.00
0.00
0.0
10.0
20.0
30.0
40.0
-1.00
-2.00
Government Debt/GDP %
Year
37
50.0
60.0
70.0
BRASIL - MINISTÉRIO DA FAZENDA
6. JAPAN: RESULTS OF ITS FISCAL POLICY
It is possible to resume Japanese main characteristics of its institutional, political and
legislation framework as follows:
Table 9: Japan – Main Characteristics of Fiscal Framework
Item
Characteristic
Institutional
Budget is proposed by spending Ministries and consolidated by the Ministry
Factors
of Finance. Spending Ministries have relative power to avoid restrictions
established by MOF. Parliament can increase total budget.
Medium
Voters There is no direct participation of voters in the definition of the budget.
Positions
Fiscal System in Tax system is very centralized in the central government and local authorities
Federal Structure
do not have power to issue debt bonds without approval of Ministry of Home
Affairs.
Transparency
The budget is considered complex and not unique with 37 special accounts
and other funds.
Legislation
Fiscal Structural Reform Act was enacted in 1997 but suspended in 1998.
Every budget has a different approach in relation to fiscal targets.
Centralization and Budget execution and fiscal and financial control is decentralized among
Decentralization
spending Ministries reducing the power of MOF to control over expenditure
based on real cash flow.
Electoral System
It is adopted a district system of voting. There are only 5 parties in the
Parliament but to have majority it is necessary to build coalision among three
parties.
External Factors
International crisis have not affected balance of payment and currency in
Japan.
Presidential
and The System of government is Parliamentary. The Prime Minister is both the
Parliamentary
chief of State and Government and can dissolve Parliament and ask for new
elections.
Financial System
Japan has a large internal saving and do not depend on international support
to finance its public deficit leading to an independent policy with very low
interest rates to finance the debt. Aging society could harm savings in the
future.
Even considering that Japan has a stable, one-party majority government and a centralized
budget system, Ministry of Finance has not succeeded in reconstructing the fiscal system and
achieving its policy aims of reducing the deficit and level of accumulated debt. According to Wright
(1999) the reasons were:
38
BRASIL - MINISTÉRIO DA FAZENDA
- failure to persuading politicians to elaborate a more radical tax reform;
- difficulties to reconcile the contradictory aims of economic policy, need for increasing public
expending and tax cuts (international pressures) to stimulate the economy with the fiscal aims of
reconstruction, countercyclical measures;
- conflict in relation to political-electoral strategic aims;
- the nature of budget that allows spending ministries to negotiate supplementary resources during
the year;
- lack of power of MOF to avoid spending ministries having more resources to support their
expenditure; and
- small commitment in relation to the question of “how to pay for it” than other G7 countries.
Tanaka (2003) asserts that is faced with considerable difficulties in achieving both the shortterm objective of economic recovery and the medium-term objective of fiscal consolidation. At the
same time, huge amount of internal savings has been able to finance huge public deficit at an
extremely low interest rate of less than 2% for the ten-year Japanese government bond.
There are some remedies that are suggested as, for example, reduce public expenditure,
increase efficiency of public expenditure, increase transparency in relation to the formulation of the
budget and accountability of public finance and enhance the power of the Ministry of Finance in its
role to define and establish fiscal targets.
Ihori et al (2003) has assessed fiscal sustainability of Japanese current debt trend and
concluded that despite government solvency seems not been a problem, further fiscal expansion may
cause a public crisis to occur in the near future. Moreover, the effect of fiscal policies was too
marginal to stimulate macroeconomic activity. Finally, Japan would face more difficult economic
problems in the future since the population is aging very rapidly and the Japanese market system is
39
BRASIL - MINISTÉRIO DA FAZENDA
behind the ‘global standard’. It is recommended, as a conclusion, that it is necessary to promote
fiscal reforms including increasing tax revenue and reducing expenditure.
So, it is important to emphasize that present trend in Japanese growth of fiscal deficit
represents also a moral hazard for the society in the medium and long-term because it could be
necessary to apply a severe monetary and fiscal policy much deeper in the future. It is very important
to promote some reforms as soon as it is identified signals of economic recovery to avoid that fiscal
debt could represent a threat to economic growth because a crowding out effect could increase the
level of interest rate in a way that impact sustainable recovery of the economy.
Table 10 - Japan: Debt/GDP Ratio and Primary Surplus - 1983-2003
Debt/GDP
Primary
Year Increase
Year
Ratio - %
Surplus/
Debt/GDP
GDP - %
Ratio - %
1983
41.0
-2.1
1984
45.0
-1.0
9.76
1985
50.0
-0.3
11.11
1986
54.0
0.3
8.00
1987
55.2
1.3
2.22
1988
53.3
2.1
-3.44
1989
50.2
2.3
-5.82
1990
48.2
2.9
-3.98
1991
47.6
2.5
-1.24
1992
49.5
-0.4
3.99
1993
55.7
-1.4
12.53
1994
59.4
-2.4
6.64
1995
65.3
-3.4
9.93
1996
69.1
-3.3
5.82
1997
74.6
-2.6
7.96
1998
85.4
-4.3
14.48
1999
96.3
-5.7
12.76
2000
104.4
-4.3
8.41
2001
121.2
-4.1
16.09
2002
134.4
-5.3
10.89
2003
145.1
-5.4
7.96
Source: Ministry of Finance
40
BRASIL - MINISTÉRIO DA FAZENDA
Figure 5: Japan – Primary Surplus and Government Debt – 1983 - 2003
Japan - Primary Surplus/GDP x Public Debt/GDP % - 1983-2003
4.0
3.0
2.0
Primary Surplus/GDP %
1.0
0.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
-1.0
-2.0
-3.0
-4.0
-5.0
-6.0
-7.0
Public Debt/GDP %
Year
7. WHAT CAN BE LEARNED
The first conclusion that should be emphasized is that a lot of factors count when fiscal
policy is concerned. It includes general economic and historic background of a country, the level of
domestic savings and its dependence from external financial resources, its institutional framework
and characteristics of political system. But these factors have different impacts depending on each
country reality.
In relation to Brazil, its external vulnerabilities have imposed a more complex approach to
deal with fiscal crisis in a more permanent basis. It was necessary to build up a series of policies
involving a radical change in Constitution and other relevant financial laws, have a permanent
necessity to negotiate thoroughly each fiscal and economic reform in Congress due to the
weaknesses in the political scenario represented by a fragile coalision government, increase the
power of the Ministry of Finance and Ministry of Planning to manage the budget in a more
41
BRASIL - MINISTÉRIO DA FAZENDA
restrictive manner, and build a permanent dialogue with the financial system to demonstrate
permanent commitment to fiscal stability. Apart from that, it has been necessary to negotiate a large
financial support by the International Monetary Fund to give some financial strength to maintain the
capacity of the country to pay its external debt, manage the current account and avoid being exposed
by severe and rapid changes in the international financial market. Due to a severe fiscal policy Brazil
will resume the support of the IMF in December of 2004.
In relation to the destabilizing effects of capital movements Iwami (1995) identified that:
“Capital flows tend to amplify any real imbalance, as syndicate loans to the LDCs [less
developed countries] and foreign investment in US bonds illustrate, and sometimes to
destabilize the floating exchange-rate system as well. But it is irrational to reduce the current
capital flows back to the scale of, say, the 1960s. The developing countries, including the
East Europeans, need foreign investment to realize their growth potential, while developed
countries still need to finance their current account deficits, at least temporarily. The
supposed destabilizing effects of capital movements are rather reflections of fundamental
imbalances. Indeed, the USA will have to reduce its fiscal deficits in the long run in order to
stabilize the dollar exchange rate.”
So, it could be asserted that permanent imbalances and huge fiscal deficits in the developed
nations (USA and Japan, for example) can represent a threat to global economic growth and
developing countries need to learn how to deal with this scenario.
In relation to Japan, due to the internal capacity to finance its debt using the huge domestic
savings paying a small interest rates and counting with a relatively long maturity of the government
bonds, the other factors such as eventual fragility in the budget system, lack of political will to
support more radical and structural reforms and a complex political environment where groups of
42
BRASIL - MINISTÉRIO DA FAZENDA
interests have significant power, have not been strong enough to impose any important threat to the
fiscal and financial stability of the country. But there is a kind of a moral hazard due to the fact that
fiscal policy is unsustainable particularly if it is considered the consequences of the aging society
(more expenses in the future) and the difficulties to achieve a consistent growth rate.
There is also an important consideration that should not be forgotten. It is related to the
decline in individual saving rates in Japan. Nowadays, the level of individual saving is less than 10%
while during the 1970s it was more than 20% and more than 10% in the 1980s. If this trend
continuous it is possible to get a reduction in the overall value of the savings leading to an expanding
difficulty to finance public debt in the future. The reasons behind this tendency are in part due to
aging society, continuous stagnation of economy and also changing in labor market and behavior of
the youngest generation that could not be comfortable in increasing their savings to face higher
taxation or reducing social benefits when they retire. So, recovering domestic saving ratio remains as
a challenge to be faced by the Japanese government in its fiscal policy.
For Brazil, certainly the most significant lesson is related to the necessity to develop more
strongly a domestic saving strategy to give financial stability to the country. In this case, the other
factors, particularly those referred by the legal apparatus, will be an advantage because it can
compensate eventual fragility in the political arena. If the internal savings increase, the use of
external sources will be an opportunity and not a necessity.
For Japan, it is important to take in account that it is necessary to avoid being put in a fragile
situation if the public debt continue to increase in a trend which could be unsustainable particularly
if were necessary to increase the interest rates and the level of expenditure related to the pension
system and external pressure from other developed nations and international organizations weaken
the credibility of the Japanese financial system.
43
BRASIL - MINISTÉRIO DA FAZENDA
So, for Brazil it is recommended that a reform in the financial system would be conducted in
a way to incentive domestic savings and decrease dependency of international resources. In terms of
debt management it is important to increase the maturity of the public bonds and decrease its
relationship to the exchange rate and interest rates maintained by the Central Bank to manage the
monetary policy. It is important to avoid the contamination of the public deficit resulting from the
huge amount of interests that should be financed by the budget. These measures can give some
opportunities to the government increase the investment in infrastructure and social development.
At the institutional level it is important to reduce the rigidity of the budget and create
incentives for the public organizations save resources in the budget if there are guarantees that the
amount saved will be incorporated in future budget as a result of a more efficient management of the
resources. Nowadays legislation has established only punishment without any provision for
rewarding good management. Finally, increase the direct participation of the society in the
discussion of the budget is important to enhance commitment of the tax payer in relation to the
financing of the public expenditure.
For Japan, it is recommended to increase the power of the Ministry of Finance in relation to
the proposal and implementation of a more balanced budget. It seems that despite of establishing
some fiscal targets, there is not a legal and institution framework that allows MOF guarantee the
achievement of the target. At the same time, it is important to increase transparency in relation to the
financial information and have a consolidated budget that should be discussed by the Diet before the
approval of each special account. It is likely that a more transparent discussion about the overall
budget will give opportunity to promote structural reforms as soon as members of the Diet, the
media and the society as a whole realize that a permanent growth in fiscal deficit could represent a
threat to the economy of the country in the future. As society aging is an inevitable trend, it should
44
BRASIL - MINISTÉRIO DA FAZENDA
be considered an increase in the tax and a reduction in expenditure to bring fiscal deficit to a more
balanced framework.
BIBLIOGRAPHY
BOHN, H. and INMAM, R.P. (1996) Balanced-Budget Rules and Public Deficits: Evidence from
the U.S. States. Carnegie-Rochester Conference Series on Public Policy, 45, 13-76.
BRAZIL (1988) Constitution of the Federative Republic of Brazil. 1997 Revised Edition. Brasilia.
Brazilian Senate. English Version.
BRAZIL (2000) Complementary Law no. 101, Fiscal Responsibility Act. Brasilia. Brazilian National
Congress. English Version.
BRAZIL (2003) Fiscal Target for 2003. Ministry of Finance website. Brasilia.
BRAZIL (2002) Ministry of Planning, Budget and Administration. Fiscal Responsibility Act: Primer
on the Fiscal Responsibility Law. Brasilia. www.planejamento.gov.br
CARGILL, Thomas F. and YOSHINO, Naoyuki (2003) Postal Savings and Fiscal Investment in
Japan: The PSS and the FILP. Oxford University Press.
DOI, Takero and IHORI, Toshihiro (2002) Fiscal Reconstruction and Local Interest Groups in
Japan. Journal of the Japanese and International Economics 16, 492-511. Academic Press.
DOI, Takero (2004) To Establish Sustainability of Government Deficits: Methodology and
Application. PRI Discussion Paper Series (no. 04A-04). Research Department Policy Research
Institute. Ministry of Finance. Tokio.
GIAVAZZI, Francesco and PAGANO, Marco (1990) Confidence Crises and Public Debt
Management in Public Debt Management: Theory and History. Rudiger Dornbush and Mario Draghi
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HAGEN, Jurgen von (1992) Budgeting Procedures and Fiscal Performance in the EC, Commission
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HALLERBERG, M. and von HAGEN, J. (1999) Electoral Institutions, Cabinet Negotiations, and
Budget Deficits in European Union in J. Poterba and J. von Hagen (eds.), Fiscal Institutions and
Fiscal Performance, Chicago: Chicago University Press and NBER, pp. 209-32.
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the 1990s in Symposium Japan’s Lost Decade: origins, Consequences and Prospects for Recovery.
The World Economy vol. 26 no. 3. Blackwell Publishing.
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Board Completes Sixth Review of Brazil's Stand-By Arrangement. Washington.
IWAMI, Taru (1995) Japan in the International Financial System Studies in the Modern Japanese
Economy. General Editors: Malcolm Falkus & Kojiro Niino. London. Macmillan Press Ltd.
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OHKAWA, Masazo and IKEDA, Kotaro (1993) Government Bonds in Japan’s Public Sector: How
the Government is Financed ed. By Tokue Shibata. University of Tokio Press. Tokio.
POTERBA, James M. and HAGEN, Jurgen von (1999) Fiscal Institutions and Fiscal Performance.
The University of Chicago Press.Chicago and London.
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Government is Financed ed. By Tokue Shibata. University of Tokio Press. Tokio.
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of Public Economics 87 (2003) 387-426. North-Holland.
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Budgeting in Japan, 1975-1997 in Fiscal Institutions and Fiscal Performance. The University of
Chicago Press. Chicago and London.
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BRASIL - MINISTÉRIO DA FAZENDA
Tables
Brazil - Main Economic Indicators
GDP
Net
Year
GDP
per
Income
Send
million Capita Abroad
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
US$
A
17,568
12,810
15,792
17,883
18,215
19,968
24,014
21,664
22,765
28,540
31,262
34,135
37,392
42,576
49,162
58,753
84,086
110,391
129,891
153,959
177,247
201,204
223,477
237,772
258,553
271,252
19,459
189,744
211,092
257,812
282,357
305,707
415,916
469,318
405,679
387,295
429,685
543,087
US$
B
275
195
233
256
254
270
316
277
283
345
367
390
415
457
515
601
839
1,075
1,234
1,427
1,603
1,776
1,925
2,005
2,133
2,190
1,497
1,468
1,599
1,915
2,057
2,186
2,923
3,180
2,706
2,544
2,781
3,464
% GDP
C
0.33
0.64
0.63
0.69
0.51
0.84
0.53
0.54
0.92
0.80
0.95
0.80
0.76
0.88
0.95
0.96
0.87
0.83
1.36
1.52
1.61
2.32
2.73
3.26
4.23
5.32
6.25
6.31
5.63
4.66
3.93
4.23
3.32
2.45
2.26
1.93
2.52
1.69
General
Investment
Export
Import
% GDP
E
14.88
16.80
17.78
15.55
12.95
15.35
16.86
14.80
14.60
15.79
16.08
18.55
18.96
18.66
19.91
20.33
20.37
21.84
23.33
22.41
21.32
22.26
23.35
22.87
24.31
22.99
19.93
18.90
18.01
20.01
23.17
24.32
26.86
20.66
18.11
18.42
19.28
20.75
%
GDP
F
5.57
5.72
5.95
5.32
5.79
6.66
8.64
6.52
7.61
6.49
5.72
5.96
6.27
6.56
6.46
7.27
7.84
7.67
7.22
7.01
7.24
6.69
7.24
9.04
9.62
7.90
12.24
15.04
12.95
9.22
9.83
11.67
8.93
8.20
8.68
10.87
10.50
9.51
%
GDP
G
6.15
6.09
6.58
6.40
6.19
8.02
9.02
5.62
5.40
5.77
5.78
6.72
6.21
6.95
8.19
8.86
9.01
13.29
11.02
9.40
7.90
7.88
9.32
1.29
10.01
8.59
9.66
8.79
7.50
6.64
6.43
6.10
5.46
6.96
7.91
8.39
9.10
9.16
Consumption
% GDP
D
83.23
82.21
80.08
84.07
85.33
83.67
82.34
82.24
79.37
80.85
83.79
81.78
75.11
76.89
80.48
80.38
79.12
81.31
78.10
79.36
78.64
78.17
78.96
78.94
75.93
78.06
79.03
76.13
74.16
77.38
73.43
70.11
69.67
78.59
79.47
78.58
77.75
77.50
47
Foreign
Gross
Savings
Savings
% GDP
H
-1.34
-0.15
-1.25
0.47
-1.10
-0.18
-0.33
-2.44
-5.28
-2.69
0.69
1.19
-2.14
-0.39
1.31
1.66
0.33
3.98
2.79
3.28
1.57
2.71
5.03
4.99
4.39
6.37
5.16
1.25
-2.27
2.03
0.51
-1.37
-0.25
1.07
1.17
-0.92
0.76
0.92
% GDP
I
16.22
16.94
19.03
15.08
14.05
15.53
17.19
17.24
19.88
18.48
15.39
17.36
21.10
19.05
18.60
18.67
20.04
17.86
20.54
19.13
19.75
19.55
18.32
17.87
19.92
16.62
14.77
17.66
20.28
17.98
22.26
25.69
27.11
19.09
18.60
19.86
20.09
21.23
Real
GDP
Tax
Growth
%
GDP
J
8.38
10.50
9.50
9.59
8.75
6.51
0.36
3.58
2.42
6.76
4.43
9.70
9.39
10.35
11.44
11.91
13.94
8.05
5.22
10.34
4.88
5.02
6.76
9.17
-4.28
0.81
-2.92
5.39
7.91
7.50
3.61
-0.05
3.20
-5.05
1.03
-0.54
4.92
5.85
Burden
%
GDP
K
16.66
18.70
17.90
17.42
16.38
15.76
16.05
17.02
19.71
22.13
21.62
24.30
25.91
25.98
25.26
26.01
25.05
25.05
25.22
25.14
25.55
25.70
24.66
24.45
25.18
26.24
26.84
24.19
23.83
26.50
24.25
23.36
23.74
27.94
24.38
25.15
25.92
28.87
BRASIL - MINISTÉRIO DA FAZENDA
1995
1996
1997
1998
1999
2000
2001
2002
705,449
775,475
807,814
787,889
536,554
602,207
510,360
450,882
4,436
4,809
4,942
4,755
3,195
3,539
2,961
2,582
1.57
1.57
2.00
2.32
3.50
2.96
3.78
3.86
79.48
80.99
80.87
81.06
81.38
79.97
79.79
78.17
20.54
19.26
19.86
19.69
18.90
19.29
19.47
18.32
48
7.72
6.99
7.51
7.42
10.28
10.66
13.22
15.49
9.49
8.90
9.88
9.60
11.82
12.18
14.22
13.41
2.82
3.15
4.14
4.32
4.73
4.22
4.45
1.24
19.47
17.77
17.35
16.80
15.43
17.33
16.75
18.51
4.22
2.66
3.27
0.13
0.79
4.36
1.31
1.93
30.64
28.63
28.58
29.33
31.07
31.61
33.40
34.88
BRASIL - MINISTÉRIO DA FAZENDA
Main Indicators of Japanese Economy - 1956-2003
Year
Real
GDP
Cumulative
Bond
Bond
Bond
Nominal
Primary
Real
Operational
Nominal
Debt/GDP
Growth
GDP
Dependancy
Issuance
Outstand
Interest/
Surplus/
Interest/
Surplus/
Surplus/
ratio
GDP
GDP
GDP
GDP
GDP
%
%
%
%
%
-5.4
-4.7
-5.3
-4.8
-4.9
-4.2
-3.8
-3.1
-2.1
-1.0
-0.3
0.3
1.3
2.1
2.3
2.9
2.5
-0.4
-1.4
-2.4
-3.4
-3.3
0.8
1.3
1.9
2.6
3.3
4.4
5.6
6.6
7.7
8.7
9.7
10.2
10.4
10.5
10.6
10.8
11.0
10.8
10.6
10.7
10.7
10.7
Rate
%
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
7.5
7.3
11.2
12.2
11.7
7.5
10.4
9.5
6.2
11.0
11.0
12.4
12.0
8.2
5.0
9.1
5.1
-0.5
4.0
3.8
4.5
5.4
5.1
2.6
2.8
3.2
2.4
4.0
4.2
3.2
5.1
6.3
4.9
5.5
2.5
0.4
0.4
1.1
2.5
3.4
1956=100
100.0
107.5
115.3
128.3
143.9
160.8
172.8
190.8
208.9
221.9
246.3
273.4
307.2
344.1
372.3
391.0
426.5
448.3
446.0
463.9
481.5
503.2
530.3
557.4
571.9
587.9
606.7
621.3
646.1
673.3
694.8
730.2
776.2
814.3
859.1
880.5
884.1
887.6
897.4
919.8
951.1
trillion
Y$
%
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
25.3
29.4
32.9
31.3
34.7
32.6
27.5
29.7
26.6
24.8
23.2
21.0
16.3
11.6
10.1
10.6
9.5
13.5
21.5
22.4
28.0
27.6
5.3
7.2
9.6
10.7
13.5
14.2
12.9
14.0
13.5
12.8
12.3
11.3
9.4
7.2
6.6
7.3
6.7
9.5
16.2
16.5
21.2
21.7
trillion
Y$
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.2
0.9
1.6
2.1
2.5
2.8
4.0
5.8
7.6
9.7
15.0
22.1
31.9
42.6
56.3
70.5
82.3
96.5
109.7
121.7
134.4
145.1
151.8
156.8
160.9
166.3
171.6
178.4
192.5
206.0
255.2
244.7
49
-1.5
-0.7
-1.6
-4.5
-4.7
-6.0
-6.5
%
64.6
61.1
63.5
69.0
73.9
80.4
86.5
BRASIL - MINISTÉRIO DA FAZENDA
1997
1998
1999
2000
2001
2002
2003
0.2
-0.8
1.9
1.7
-1.3
953.0
945.4
963.3
979.7
967.0
967.0
967.0
23.5
40.3
42.1
36.9
35.4
41.8
44.6
18.5
34.0
37.5
33.0
30.0
35.0
36.4
258.0
295.2
331.7
367.6
392.4
428.0
450.0
-2.6
-4.3
-5.7
-4.3
-4.1
-5.3
-5.4
50
10.6
10.8
10.5
10.0
9.4
9.0
9.1
-5.3
-6.7
-8.1
-7.9
-7.6
-8.2
-7.7
92.0
103.0
115.8
123.4
132.6
142.7
151.0
BRASIL - MINISTÉRIO DA FAZENDA
Main Indicators of Brazilian Economy - 19562003
Year
Real
GDP
Cumulative
Bond
Bond
Bond
Nominal
Primary
Real
Operational
Nominal
Debt/GDP
Growth
GDP
Dependancy
Issuance
Outstand
Interest/
Surplus/
Interest/
Surplus/
Surplus/
ratio
GDP
GDP
GDP
GDP
GDP
%
%
%
%
%
50.80
7.60
5.80
-1.70
-4.20
-2.60
-1.60
1.00
-0.90
1.00
-4.60
-2.71
-1.57
-2.19
-5.21
-0.27
0.09
Rate
%
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
8.4
10.5
9.5
9.6
8.8
6.5
0.4
3.6
2.4
6.8
4.4
9.7
9.4
10.4
11.4
11.9
13.9
8.1
5.2
10.3
4.9
5.0
6.8
9.2
-4.3
0.8
-2.9
5.4
7.9
7.5
3.6
-0.1
3.2
-5.1
1.0
-0.5
4.9
5.9
4.2
2.7
1956=100
100.0
108.4
119.8
131.1
143.7
156.3
166.5
167.1
173.0
177.2
189.2
197.6
216.8
237.1
261.7
291.6
326.3
371.8
401.7
422.7
466.4
489.2
513.7
548.5
598.8
573.1
577.8
560.9
591.1
637.9
685.7
710.5
710.1
732.9
695.8
703.0
699.2
733.6
776.5
809.3
830.8
%
mi US$
mi US$
51
4.70
6.90
7.00
5.20
4.50
5.70
5.90
3.30
2.90
3.32
2.98
4.07
5.26
3.30
3.00
2.70
4.40
3.60
5.50
4.80
6.90
-1.30
0.19
1.75
0.79
-1.14
4.99
3.39
45.50
7.20
5.90
%
51.5
55.8
52.6
49.4
50.3
46.9
40.2
40.6
37.9
37.2
33.0
29.2
30.5
33.3
BRASIL - MINISTÉRIO DA FAZENDA
1997
1998
1999
2000
2001
2002
2003
3.3
0.1
0.8
4.4
1.3
1.9
-0.2
858.0
859.1
865.9
903.7
915.5
933.2
931.1
388,667
516,579
563,164
660,867
881,108
913,145
5.10
7.90
13.80
8.00
7.20
8.50
9.60
52
0.95
-0.01
-3.23
-3.46
-3.70
-4.01
-4.32
3.35
7.42
6.64
4.64
5.15
4.40
4.95
4.30
7.41
3.41
1.18
1.45
0.39
0.63
6.10
7.90
10.50
4.50
3.60
4.60
5.20
34.3
41.7
48.7
48.8
52.6
55.5
58.7