Fiscal Policy and Debt Sustainability: Cardoso's Brazil, 1995-2002

44 Pages Posted: 15 Feb 2006

See all articles by Fabio Giambiagi

Fabio Giambiagi

Banco Nacional de Desenvolvimento Econômico e Social (BNDES) - Department of Economico

Marcio Ronci

International Monetary Fund (IMF) - Policy Development and Review Department

Date Written: August 2004

Abstract

We look into Brazil`s public sector accounts during the two administrations of President Fernando Henrique Cardoso: 1995-98 and 1998-2002. We underline the fact that the authorities` attitude was as important as the pace of the structural reforms for understanding the dynamics of the public sector debt and deficit. The high deficit of the first administration (1995-98) resulted from an expansionary policy, while the adjustment of 1999 is seen as proof of a commitment to fiscal rigor and the need to finance public spending adequately. We present a detailed breakdown of the fiscal outcomes. Two important messages come out: (a) the principal cause of the fiscal deterioration in the first Cardoso administration was the deterioration in the primary balance rather than the increase in the interest payments on public debt; and (b) the fiscal adjustment was entirely on account of increased revenues, as the federal primary public expenditure grew in real terms during the eight years of the two administrations. We consider the outlook for fiscal sustainability, and conclude that, to preserve the hard-won fiscal discipline, the authorities` recent austere fiscal attitude should be permanently embedded into the fiscal institutions.

Keywords: Fiscal policy, debt sustainability, institutions

JEL Classification: E62, H50, H55, H60, H62, H63, H70, H77, N16

Suggested Citation

Giambiagi, Fabio and Ronci, Marcio, Fiscal Policy and Debt Sustainability: Cardoso's Brazil, 1995-2002 (August 2004). IMF Working Paper No. 04/156, Available at SSRN: https://ssrn.com/abstract=881895

Fabio Giambiagi (Contact Author)

Banco Nacional de Desenvolvimento Econômico e Social (BNDES) - Department of Economico ( email )

Area de Planejamento
Rio de Janeiro, Sala 1428
Brazil
+55 21 277 7844/7371 (Phone)
+55 21 220 1397 (Fax)

Marcio Ronci

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

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