Exploring America’s Top Brazilian Community

The data in Table 21 and Figure 12 totally shows how this whole process is going down. Like, in the 70s, real transfers were, like, the big thing when it came to external borrowing needs. It was all because of the oil crisis messing with imports, the international recession hurting exports, and Brazil trying to keep its economic growth going. But like, once the big oil shock calmed down, the trade balance started to even out and real transfers made the external debt less of a big deal by 1976. On the flip side, capital costs (like interests and profits) went up big time, making up more than 50% of the deficits in the current account after 1977. OMG in 1978 the economy was like growing at only half the rate that it had been in 1976, but profit remittances were like twice as high.

Lit! Interest payments were like, legit 40% of the current account deficits, so way more than the real transactions, ya know?

Yo, like, if we peep the total cost of servicing the external debt, it's hella clear that financial factors, like foreign reserves and capital costs (ya know, profits, interests, and amortisation), took up most of the external borrowing to fund 'em. OMG, like in Figure 12, capital costs were, like, a total of US$ 60 billion from 1970 to 1979, which is, like, 70% of the money that came in during that time.69 So basically, the Brazilian debt was like totally blowing up to cover the financial costs of the debt, you know? OMG, like in the late 1970s, private borrowers were totally ghosting the international financial markets because things were getting way too expensive and unpredictable. So, the government had to step up and borrow more money from other countries to keep up with their promises and pay their bills. It was like, in the context of a super bad current account profile, the government totally made public institutions get more foreign borrowing to help with reducing private debt. So like, check it out, Table 20 above is all like, showing how public institutions were totally ramping up their borrowings.

They were taking up over 72% of the capital inflows under Law 4131 and Resolution 63 in 1978, and like, around 80% in 1979. Crazy, right?

OMG, like, in this context, the public sector being hella in debt was basically the ultimate borrower when no one else could handle the interest, profits, and repayments that only private external debt couldn't cover. Lit, right? As like, people say, like, not much of this debt stuff had to do with the basic theory of real transfer, or like, when you spend more money than you save.67 OMG, like, Brazilian debt was totally on a roll! More money coming in meant more debt to pay off, which meant more deficits. It was a whole cycle, you know? OMG, the reserves in 1975 were like totally reduced (Table 19)! OMG, like in 1976, the BACEN was like, "No more interest rate limits for finance companies, investment banks, and commercial banks!" They wanted to make the difference between domestic and international interest rates bigger and make borrowing from other countries more appealing. It was all about that credit game, you know? In 1977, Resolution 432 and Instruction 230 of the BACEN were like, "Yo, let's protect against changes in exchange rates by letting firms and banks deposit foreign currency in the BACEN, fam." The BACEN also took on the external vibes of these deposits and totally exempted the depositors from income tax, basically making foreign borrowing hella risk-free for the private sector. OMG, like the loan was so lit because of the huge guarantor and their creditworthiness. No wonder the private sector affiliates of foreign banks and non-financial companies got the most benefits from the sick favours and incentives to borrow in the Euromarkets. Like, in 1972, the financial and non-financial foreign enterprises borrowed only 1.3 times more than private national firms. But by 1975, foreigners were borrowing a whopping 4.4 times more than nationals, and still 3 times more in 1978. Crazy, right? Overall, tho, the private sector was like totally on point with the incentives and borrowed hella until 1978. The private sector like totally started cutting back on its foreign borrowing when the costs of it started skyrocketing from 1978, you know?

The gov also flexed with a bunch of moves and rules to make public institutions flex on borrowing from overseas.

The gov like totally clamped down on state-owned companies' ability to make bank by putting mad restrictions on their pricing (Trebat 1983, p.206), which was all part of the government's anti-inflation vibe. OMG, like, Resolutions 445 of 1977, 521 of 1979, 623 and 656 of 1980 were totally putting a cap on state enterprises' ability to get money from within the country. They were like, "Nah, that's only for private peeps." Therefore, like, state enterprises were like low on cash because either the economy was like slow or their prices were controlled. So, they had to rely on external loans to like pay for their expenses. Like, check it out, the public electricity and steel companies' debt, which wasn't as impacted by the cuts in the late 70s, made up, like, 29% of the total money coming in under Law 4131 in 1979 (Cruz 1999[1984], p.116). Table 20 below shows the tea on public and private borrowing in Brazil, fam. We got Law 4131 for direct borrowing by firms and Resolution 63 for borrowing through banks, you feel me?