The Brazilian economy began the year with the population’s indebtedness falling. The percentage of families in debt fell from 78% in January to 77.3% in August in the monthly survey on the topic carried out by the National Confederation of Commerce (CNC).
This percentage, however, is still considered extremely high by some economists. The level was reached, mainly, during the government of former president Jair Bolsonaro (PL).
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Between 2019 and 2022, the period in which Bolsonaro governed the country, the annual average of indebted families jumped 14 points in CNC surveys. It rose from 63.6% to 77.9%, reaching a peak of 79.3% in September last year, an increase never before recorded by the entity.
According to economists interviewed by Brasil de Fato, debt is currently a barrier to the resumption of economic growth in the country as it limits family consumption. The government of President Luiz Inácio Lula da Silva (PT) launched the Desenrola Brasil program to try to resolve the issue, they say. A definitive solution, however, will not be simple.
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Mauricio Weiss, economist and professor at the Federal University of Rio Grande do Sul (UFRGS), explained that family debt began to worsen in the country in 2015, when Brazil was governed by former president Dilma Rousseff (PT) and entered in economic recession. The Gross Domestic Product (GDP) fell 3.5%, worker income also fell, and unemployment began to rise.
That year, however, the average debt rate was 61.1%.
In 2016, in fact, he even fell. It dropped 60.2% and remained below 61% until 2018, the year in which Bolsonaro won the presidential election.
Weiss highlighted that, from 2016 to 2018, Brazil was governed by Michel Temer (MDB), under a neoliberal agenda. This led to low GDP growth, increased unemployment and stagnant wages. Temer was even a supporter of the 2017 Labor Reform, which made work precarious in the country.
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All of this, year after year, compressed the budget of families in the country and “pushed” them into debt. When Bolsonaro took office, in January 2019, and the new coronavirus pandemic broke out around the world, in December of the same year, the situation of families got much worse. Debt was a way of guaranteeing the cost of basic expenses, including food.
“In the context of the pandemic, when aid (Auxílio Brasil) took a long time to arrive, and arrived combined with an increase in basic prices, mainly energy and food, this made families more dependent on credit”, added André Roncaglia, economist and professor at the Federal University of São Paulo (Unifesp), who also sees the drop in workers’ income as the cause of the problem.
Interest on the account
According to Simone Deos, professor at the Institute of Economics at the State University of Campinas (Unicamp), she also says that the pandemic had a “disastrous” effect on family debt from 2020 onwards. That year, it had an average of 66.5% – around 11 points less than in 2022.
She, however, highlighted the role of interest in this increase in debt. From 2020 to 2022, the average interest charged to Brazilian families increased from 41.5% to 52.1% per year, according to the CNC. “The combination of economic decline and high interest rates had the effect of increasing household debt,” he said.
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For Deos, reducing interest rates charged by banks to reasonable levels is essential for reducing debt. Today, banks are the country’s main creditors, as 85% of families with debt have bills to pay on their credit cards, provided by financial institutions.
Interest charged on credit cards is currently the most expensive in the country, according to a periodic survey carried out by the National Association of Finance Executives (Anefac). They are 425% per year on average. This is more than triple the average interest on credit operations.
With an interest rate of 425% per year, a card user’s debt increases fivefold in one year if it is not paid. It therefore becomes practically priceless.
For her, Desenrola deals with debt, but does not act to reduce interest or other causes of problems. It helps, but doesn’t solve it.
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Weiss, from UFRGS, confirms. For him, only improvements in the general conditions of the economy – employment, income, growth – will reduce family debt. For him, another contribution to solving the problem can come from reducing inflation, which stabilizes prices and prevents the erosion of family budgets in the country.
Editing: Thalita Pires