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Too much consumer debt threatens Brazil’s economy

Too much consumer debt threatens Brazil's economy

Brazilian President Dilma Rousseff with US President Barack Obama when he visited Brasilia.

This story appeared on the International Business Times website on June 14, 2012:

By Rasheed Abou-Alsamh

BRASILIA, Brazil – Brazil is one of the world’s great economic success stories. Within the last decade, it has become the sixth-largest global economy, with a healthy growth rate that averaged at approximately 4 percent in the 2000s. It exports huge amounts of raw materials; extracts oil; is a top automobile producer that makes more cars than France and Italy combined; and has become a global powerhouse in technologies that used to be the province of the top advanced nations, like aerospace manufacturing.

But beneath the brilliant numbers (and the inequality, as Brazil is only number 101 in the world by income per capita, according to the CIA’s World Factbook) there is a hidden risk that could jeopardize the success of the biggest economy in the Americas after the United States: debt. It’s not the kind of national debt that worries Brazil’s big neighbor to the north. Whereas the U.S. has a public debt now equal to the size of its economy, Brazil’s is at a far more manageable 40 percent — but its problem lies with the debt of its consumers. It’s a burden that is choking the middle class and could hurt the sales of some of the very goods, from cars to appliances, that have historically been the foundation of the country’s industrial boom.

The latest statistics released by the Brazilian National Confederation of Commerce (CNC) show that the total number of indebted or bankrupt Brazilian families grew slightly to 57.3 percent in June from 55.9 percent in May. Granted, that is better than the 64.1 percent of all families in debt or bankrupt in June of last year. But it’s a level still considered too high by many economic experts, who believe that the government is creating long-term debt for the sake of short-term economic growth.

Unaffordable Loans

Brazilians are maxing out credit cards and taking out loans they can’t afford so they can participate in the country’s economic miracle, and that’s a bad idea in the long run, according to Roberto Piscitelli, an economics professor at the University of Brasilia: “People are using all of the credit available to them. This is absurd and is much too high,” he warned. “Some say that families can use up to 30 percent of their monthly income toward debt repayment, but with fixed monthly costs of rent, school fees, Internet and condominium fees, that sometimes eats up to 40 percent of their monthly income.”

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