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

August 1, 2004

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Fiscal Policy and Debt Sustainability: Cardoso's Brazil, 1995-2002, (USA: International Monetary Fund, 2004) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Economic sectors, Expenditure, Fiscal policy, Fiscal stance, Public debt, Public sector

Keywords: Authorities' effort, Authorities' rhetoric, Debt, Debt sustainability, Financial system, Fiscal attitude, Fiscal policy, Fiscal stance, GDP deflator, Government, Government's attitude, Institutions, Part of the authorities, Payroll spending, Public sector, Real interest rate, Real value, Sc, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/156
Stock No:

WPIEA1562004
ISBN:

9781451857436
ISSN:

1018-5941

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