The adjustment of public déficit in the presence a high debt: observations about the Brazilian case

Vol. 9 No. 4 (1989)

Oct-Dec / 1989
Published October 1, 1989
PDF-Portuguese (Português (Brasil))
PDF-Portuguese (Português (Brasil))

How to Cite

Jr., Paulo Nogueira Batista. 1989. “The Adjustment of Public déficit in the Presence a High Debt: Observations about the Brazilian Case”. Brazilian Journal of Political Economy 9 (4):521-37. https://doi.org/10.1590/0101-31571989-1486.

The adjustment of public déficit in the presence a high debt: observations about the Brazilian case

Paulo Nogueira Batista Jr.
Centro de Estudos Monetários e de Economia Internacional, Instituto Brasileiro de Economia, Fundação Getúlio Vargas do Rio de Janeiro – CEMEI/IBRE/FGV. Rio de Janeiro/RJ, Brasil.
Brazilian Journal of Political Economy, Vol. 9 No. 4 (1989), Oct-Dec / 1989, Pages 521-537

Abstract

This article examines the obstacles to public sector adjustment arising from the
existence of a high level of government debt in the form of short-term or floating interest
rate obligations. In this context, adjustment programmes that rely exclusively on increases
in taxation and/or reductions in non-financial government expenditures have limited possibilities
of success. Besides making the budget highly vulnerable to increases in external and
internal interest rates, the size and composition of Brazilian public debt severely restrict the
effectiveness of monetary and exchange-rate policies. The article concludes that under present
circumstances a successful stabilization programme would have to involve fiscal adjustment,
a shock treatment against inflation, and a restructuring of government debt.

JEL Classification: H63; E62.


Keywords: Fiscal adjustment public debt fiscal policy