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Brazil’s coming recession: The crash of a titan
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Brazil faces a debt crisis in 2015-2016. Between 2010 and 2015 foreign debt of local governments and Brazilian firms increased from $100 billion to $250 billion, and dollar debt in local currency from 210 billion reas to 655 billion reas, according to Bank of International Settlements data. State banking institutions BNDES and Caixa Economica Federal financed 35% of loans in 2010, by 2015 this increased to 55%. Subsidized loans at 5.5% by BNDES to firms make Brazilian banking a fiscal operation, requiring additional funding. Petrobras increased debt issuance enormously during this period, and now needs government support as its debt is now one notch above junk status. Interest payments on Brazil's debt is 6% of GDP in 2014. Public sector debt is 66% of GDP, and credit to the private sector is 55% of GDP up from 25% in 2005. It will take Brazil years to recover from a huge borrowing binge.
The Economist on the Brazilian economy's perilous situation in 2015-2016
04/05/2015
Dollar debts for Brazil went up from $100 billion in 2010 to $250 billion in 2015, according to BIS data. Even more in local currency terms which went up from 210 billion reais to 650 billion reais. BNDES and Caixa Economic Federal, 2 state owned banks made up 35% of bank loans in Brazil in 2009, by 2015 this went up to 55%, making Brazil's banking system a fiscal operation overly dependent on the state. With rates as high as 16%, the state banks provide subsidized loans to firms at 5.5%. Monetary policy is difficult for the central bank as increasing rates to shore up the declining real would hurt the economy, which is expected to contract by 1.5% by official estimates, but higher according to other private estimates. The declining real, drought affecting hydroelectric generated power prices, and lower export revenues, in addition to high debt interest payments exceeding 6% of GDP, are leading to low or no economic growth for 2015-2016. This comes at a time of corruption issues and ratings one notch above junk for state oil company Petrobras, which itself needs government support.
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