HomeNEWSWhat is Brazil's foreign debt and to whom does it owe?

What is Brazil’s foreign debt and to whom does it owe?

Brazil’s foreign debt is one of those subjects that is widely commented on by media vehicles, political advertisements, specialists in the economic area, however, it does not have a very clear understanding by all parts of the population.

It is extremely important to carry out a very thorough analysis on the subject, given that a country with a high external debt is more likely to suffer economic crises and financial instability.

What this article covers:

What is Brazil’s external debt?

Brazil’s external debt are commitments assumed by entities of the Federation, or by some other public body, with the guarantee of the Union together with economic institutions headquartered outside the country that generate the obligation to pay the debt, interest and other accessory charges.

How does Brazil’s external debt work?

Brazil’s external debt, like that of any other country, is assumed in dollars. In an eventual economic crisis, the debt tends to rise, due to the power of the currency, which makes the debt even bigger.

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Thus, the country, in addition to facing a financial crisis, has to create tools to contain the increase in debt. Because of this, many economic specialists analyze the external debt in a very pessimistic way.

Furthermore, an increase in Brazil’s international debt generates enormous distrust on the part of investors who do not want to invest in the local economy. Thus, they choose not to assume the debt in the local currency, as they do not believe in the change in its purchasing power, preferring to assume the debt in dollars.

To whom does he owe?

Part of the foreign debt that Brazil owes to the International Monetary Fund, the IMF. The other part is owed to the UN, where the debt reaches the amount of US$ 361.8 million. If it persists with this debt, our country may lose its right to vote in the UN.

What is the history of Brazil’s external debt?

The origin of Brazil’s foreign debt began during the independence period, when the royal family borrowed money from Portugal.

However, after the time when the military were at the head of the government, between the 1960s and 1980s, it intensified, reaching the mark of U$S 12 billion. It only stabilized after the FHC and Lula administrations.

What are the differences between external debt and domestic debt?

External debt would be the debt contracted abroad and which must be settled in foreign currency, usually the dollar. This indebtedness results from the loan of money at interest, through contracts with financial entities or the issuance of public bonds.

What are the differences between foreign debt and domestic debt

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On the other hand, the internal debt would be the calculation of the debts that the government contracts with banks, financial institutions and people residing in the country and abroad. Generally, it originates from the issuance of government bonds offered by the financial market.

How much is Brazil’s foreign debt currently?

According to the Treasury Secretariat, in 2021, Brazil’s external debt closed in the amount of R$ 5.613 trillion. In this way, the country had an increase of 12% in relation to the previous year, which ended with a debt of R$ 5 trillion.

It became clear how serious and complex the subject is. The external debt greatly involves the functioning of our economy, as it involves from the collection period to the use of these funds raised.

A country that has a high debt generally uses a large part of its funds raised to pay it off, however, if it did not have this high debt, it could use all that was collected to invest better in quality services for society, such as health , education or security.

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