Brazil has a new President that seems to be caught between a rock and a hard place. On one hand Brazil is responsible for billions of debt, ($250 billion, or almost 60% of Brazil’s GDP! – most recently a $30 billion IMF bailout personally sold by US Treasury Secretary O’Neil) and on the other hand they have great need for social programs to help the massive amounts of people in poverty. The new President ran on a leftist Workers party platform that seems to be changing.
Brazil with its new President Lula is having problems dealing with Government debt. Brazil’s government seems to be permanently in deficit. Current short term interest rates are at 25% to control its inflation currently at 12.5%. The government also pays benefits, such as lucrative pensions, not to the poor but to wealthy people who have served as senior civil servants. The pensions deficit absorbs about 4 percent of GDP. The government is obliged to issue debt at very high interest. Interest spreads on government debt, which have climbed to over 20 percent above the rates on U.S. Treasuries in the past but have come down recently. To pay the interest charges they have to reduce spending or hike taxes.