The Brazilian Federal Bonded Debt and its Fiscal Impact: 1995-1999
IPEA Working Paper No. 700
Posted: 30 Mar 2000
Date Written: January 2000
This paper aims at an analysis of federal public debt?s (FPD) effects upon management on public sector liquid debt (PSLD) and on public sector borrowing requirements (PSBR), during the period 1995/99 in Brazil. In order to do that, the theoretical basis of FPD management is determined through the analysis of the relationship between bond maturities and return rates. The paper studies the Brazilian FPD management performance in 1995/98 concerning bond maturities and debt burden, as well as the connections between these and the basic interest rate over-selic). Through a simple model, one tries to estimate the effects of changes in over-selic rate and FPD structure on PSLD and PSBR, in 1999. The main conclusion is that FPD management can have favorable tax effects, specially through lengthening maturities and reducing interest rates, provided that expected inflation and exchange rate remain constant. Under these conditions, it would be possible to diminish PSBR by increasing the share of exchange rate indexed bonds and by reducing the share of over-selic indexed debt. Finally, the paper concludes that the "degree of freedom" of monetary authority in order to raise the basic interest rate without unbalancing fiscal figures depends on FPD structure, as well as on the share of assets and liabilities indexed to over-selic.
JEL Classification: H63, H60, H69
Suggested Citation: Suggested Citation