Source: O Estado de S. Paulo, 16/04/2006

By Renée Pereira

The total interest paid by the government, companies and families in 2005 (R $ 267,3 billion) would be enough to build 6,7 million affordable housing. In addition, the amount represented 90% of the aggregate income of all families in the State of São Paulo, according to a survey by the Trade Federation of the State of São Paulo (Fecomércio).

Today, the nominal basic interest rate of the economy (Selic) is at 16,5% per year, and is expected to drop to 15,75% at next week's meeting of the Monetary Policy Committee (Copom). For many economists, there is room for a more aggressive cut than those made by Copom since September, when the monetary tightening cycle adopted to contain the advance of inflation ended.

According to Fecomércio, each percentage point of decrease in the Selic rate represents about R $ 10 billion. In other words, if nominal interest rates had remained only 2 percentage points lower in 2005, the government could have increased its investments by 90% or doubled the amount allocated to Bolsa Família, of R $ 8,3 billion, the study concludes.

Another negative data is the current level of Brazilian real interest (discounting the projected inflation for the next 12 months), the highest in the world. According to data from the consultancy GRC Visão, Brazilian real interest is at 11,6% per year, much higher than the 7% in Singapore and 5,2% in Turkey, 2nd and 3rd in the ranking, respectively.

Brazil is also far from the general average of the 40 countries surveyed, which is 1,5% per year. According to the economic consultancy, even with the reductions forecasted by the market this year, Brazil will hardly leave the leadership of the highest real interest rates.

“We are not going to get rid of the world's highest tax title anytime soon. We may have a lower Selic rate, but it will still be high compared to the other countries ”, says the former Minister of Finance, Mailson da Nóbrega.

In the assessment of the executive director of the Institute for Industrial Development Studies (Iedi), Júlio Sérgio Gomes de Almeida, the result of high interest rates coupled with poor management in the public sector is the high Brazilian tax burden. Two major obstacles to the country's development, income generation and employment.

Factors that significantly influence the increase in informality and piracy, says the president of the Brazilian Institute of Ethics in Competition (Etco), Emerson Kapaz. He also recalls that high interest rates are a way for the government to roll over its debt. With the rate well above the other countries, Brazil becomes more attractive in the eyes of the financial market investor, who has been looking for a profitability differential in the emerging markets.

But in the opinion of the head director of the research and economic studies department of the Federation of Industries of São Paulo (Fiesp), Paulo Francini, Brazilian interest rates are not being treated correctly. "Today the fee is absurd and exaggerated."