Government consumption, foreign interest and repressed investment: the problem of external debt revisited

This paper analyses the evolution of Brazilian public sector expenditures during the second half of the 1980’s. The interpretation according to which the fiscal crisis is exogenous and caused by the external debt interest is criticized. The great increase in current expenditures after 1984, together with a budget restriction that limited public investment is discussed. Based on it, public sector consumption and not external debt interest payments is considered the most important factor responsible for the public investment trajectory over time during the last five years.

KEYWORDS:
Public expenditure; currency crisis; debt crisis