Parliamentary Inquiry Commission (CPI) of the Public Debt in Brazil: main achievements so far

10 April 2010 by Maria Lucia Fattorelli , Rodrigo Vieira de Ávila , Auditoria Cidadã da Dívida


Brazil currently spends 36% of its federal budget on interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. and repayments of its external and domestic debt, while social areas such as health receive less than 5%, and education less than 3%. This is also a reality in several countries of the South.

Therefore, the Parliamentary Inquiry Commission (CPI) of the Public Debt in Brazil represents a great achievement of social movements in Brazil and also Latin America. In early 2008, the Member of Parliament (MP) Ivan Valente (PSOL / SP) collected the signatures of 1/3 of the members of Congress in order to request the creation of the CPI. But this was not enough. The Commission still needed to be created by the House Speaker Arlindo Chinaglia. In November 2008, during the International Seminar on "Debt Audits in Latin America¨, representatives of the Ecuadorian Comprehensive Public Credit Audit Commission (CAIC) met with Chinaglia, to show the results of this process, and within weeks he created the CPI. Therefore, the official debt audit in Ecuador was of fundamental importance for the creation of the CPI in Brazil.

However, the party leaders still had to nominate their parliamentarians to be members of the CPI, which took 8 months. After the struggle of organizations and social movements, the CPI was finally installed in August 2009 and began operating, sending Information Petitions to official bodies and conducting public hearings with governmental officials and experts. Various documents and statistics, which were never before disclosed and that show various signs of illegitimacy and illegality of the public debt were obtained.

On the other hand, other information requested was not forwarded to the CPI, such as debt contracts, statistics and data on domestic debt creditors, which has significantly limited the work and proof that the debt does not have adequate control and transparency. This is another indication of the illegality of the debt and instigates the carrying out of the debt audit as drafted in the Federal Constitution.

With the drafting of the final report by the rapporteur parliamentarian, which must be voted by the other members of the Commission by April 27, the CPI is currently in its final stages. Representatives from different organizations and movements have been meeting with the parliamentarians to present and discuss the main investigations of the CPI, disseminated by MP Ivan Valente, demanding that they be included in the Report. These organizations gave the members of the CPI a summary of the investigations, a document that is available on www.diva-auditoriacidada.org.br along with periodic Bulletins on the CPI.

Since its inception, the CPI has shown positive results, inserting into the agenda of the House of Representatives the serious situation concerning the Brazilian debt, in addition to disseminating the issue in the media, including the mainstream press, helping to deconstruct the ideas disseminated by the government that the debt has already been paid and as such is no longer a problem. Several civil society groups have been mobilizing and attended the sessions of the CPI, contributing to the engagement of different sectors of society in discussions on the public debt.

In March 24, 2010, the Finance Oversight and Control Commission of the House of Representatives approved the Petition presented by MP Cleber Green (PRB/MA), establishing a permanent debt audit through the "Special Subcommittee to follow, deepen, analyze and audit the External and Domestic Public Debt¨.

The establishment of the permanent debt audit represents a large international precedent, and it is an important practical outcome of the CPI and of the meeting held on March 10 between the members of the Citizens Debt Audit and MP Cleber Mr Green, who is also a member of the CPI. The approved Petition states that the subcommittee should audit the public accounts to investigate the findings of the CPI of the Public Debt, contained in the document the Citizen’s Debt Audit distributed to parliamentarians, which involves serious illegitimacies and indications of illegalities.

Among these findings, in regards to the external debt, the following stand out: the illegality of “floating interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
” that made this debt explode from the late 80’s; the lack of debt contracts; lack of transparency and legislative authority; the successive renegotiations of the same debt, based on clauses that violate national sovereignty; recurring transformation of external debt into domestic debt; and more recently, the advance payment - at the expense of issuing domestic debt – of the debt with the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
, Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

, Brady bonds and other securities, including premiums. The inclusion of “collective action clauses” in the external debt from 2003, also violates national sovereignty.

In regards to the domestic debt, the CPI also found several indications of illegitimacy and illegality, such as openness to international financial flows, which came to Brazil in search of high interest rates; the amazing growth of the debt through the mechanism of “interest on interest¨, already outlawed by the Supreme Court; the setting of interest rates by the Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx
after consultations with the financial market Financial market The market for long-term capital. It comprises a primary market, where new issues are sold, and a secondary market, where existing securities are traded. Aside from the regulated markets, there are over-the-counter markets which are not required to meet minimum conditions. itself, which characterizes a conflict of interest; permission to issue unlimited securities from the Treasury for the Central Bank to borrow form the market (through”Open Market Operations") to buy dollars and accumulate reserves; the classification of the portion of monetary debt up-date as amortization; the allocation of resources of social sectors for debt payments, among others.

Therefore, the Debt CPI will contribute towards greater discussions on the public debt in Brazil, and to disseminate the diverse and serious illegitimacies that marked the process of the Brazilian debt. Investigations of the CPI, disseminated by social movements, even if not included in the Commission’s Official Final Report, will still be forwarded to the public prosecutor, for further investigation and legal actions which will be formulated to be forwarded to the Court of Justice in order to cancel the debt, pay the damages to public patrimony and determine responsibilities.

Finally, the struggle for the official debt audit drafted in the Constitution continues...

Brazil currently spends 36% of its federal budget on interest and repayments of its external and domestic debt, while social areas such as health receive less than 5%, and education less than 3%. This is also a reality in several countries of the South.

Therefore, the Parliamentary Inquiry Commission (CPI) of the Public Debt in Brazil represents a great achievement of social movements in Brazil and also Latin America. In early 2008, the Member of Parliament (MP) Ivan Valente (PSOL / SP) collected the signatures of 1/3 of the members of Congress in order to request the creation of the CPI. But this was not enough. The Commission still needed to be created by the House Speaker Arlindo Chinaglia. In November 2008, during the International Seminar on "Debt Audits in Latin America¨, representatives of the Ecuadorian Comprehensive Public Credit Audit Commission (CAIC) met with Chinaglia, to show the results of this process, and within weeks he created the CPI. Therefore, the official debt audit in Ecuador was of fundamental importance for the creation of the CPI in Brazil.

However, the party leaders still had to nominate their parliamentarians to be members of the CPI, which took 8 months. After the struggle of organizations and social movements, the CPI was finally installed in August 2009 and began operating, sending Information Petitions to official bodies and conducting public hearings with governmental officials and experts. Various documents and statistics, which were never before disclosed and that show various signs of illegitimacy and illegality of the public debt were obtained.

On the other hand, other information requested was not forwarded to the CPI, such as debt contracts, statistics and data on domestic debt creditors, which has significantly limited the work and proof that the debt does not have adequate control and transparency. This is another indication of the illegality of the debt and instigates the carrying out of the debt audit as drafted in the Federal Constitution.

With the drafting of the final report by the rapporteur parliamentarian, which must be voted by the other members of the Commission by April 27, the CPI is currently in its final stages. Representatives from different organizations and movements have been meeting with the parliamentarians to present and discuss the main investigations of the CPI, disseminated by MP Ivan Valente, demanding that they be included in the Report. These organizations gave the members of the CPI a summary of the investigations, a document that is available on www.diva-auditoriacidada.org.br along with periodic Bulletins on the CPI.

Since its inception, the CPI has shown positive results, inserting into the agenda of the House of Representatives the serious situation concerning the Brazilian debt, in addition to disseminating the issue in the media, including the mainstream press, helping to deconstruct the ideas disseminated by the government that the debt has already been paid and as such is no longer a problem. Several civil society groups have been mobilizing and attended the sessions of the CPI, contributing to the engagement of different sectors of society in discussions on the public debt.

In March 24, 2010, the Finance Oversight and Control Commission of the House of Representatives approved the Petition presented by MP Cleber Green (PRB/MA), establishing a permanent debt audit through the "Special Subcommittee to follow, deepen, analyze and audit the External and Domestic Public Debt¨.

The establishment of the permanent debt audit represents a large international precedent, and it is an important practical outcome of the CPI and of the meeting held on March 10 between the members of the Citizens Debt Audit and MP Cleber Mr Green, who is also a member of the CPI. The approved Petition states that the subcommittee should audit the public accounts to investigate the findings of the CPI of the Public Debt, contained in the document the Citizen’s Debt Audit distributed to parliamentarians, which involves serious illegitimacies and indications of illegalities.

Among these findings, in regards to the external debt, the following stand out: the illegality of “floating interest rates” that made this debt explode from the late 80’s; the lack of debt contracts; lack of transparency and legislative authority; the successive renegotiations of the same debt, based on clauses that violate national sovereignty; recurring transformation of external debt into domestic debt; and more recently, the advance payment - at the expense of issuing domestic debt – of the debt with the IMF, Paris Club, Brady bonds and other securities, including premiums. The inclusion of “collective action clauses” in the external debt from 2003, also violates national sovereignty.

In regards to the domestic debt, the CPI also found several indications of illegitimacy and illegality, such as openness to international financial flows, which came to Brazil in search of high interest rates; the amazing growth of the debt through the mechanism of “interest on interest¨, already outlawed by the Supreme Court; the setting of interest rates by the Central Bank after consultations with the financial market itself, which characterizes a conflict of interest; permission to issue unlimited securities from the Treasury for the Central Bank to borrow form the market (through”Open Market Operations") to buy dollars and accumulate reserves; the classification of the portion of monetary debt up-date as amortization; the allocation of resources of social sectors for debt payments, among others.

Therefore, the Debt CPI will contribute towards greater discussions on the public debt in Brazil, and to disseminate the diverse and serious illegitimacies that marked the process of the Brazilian debt. Investigations of the CPI, disseminated by social movements, even if not included in the Commission’s Official Final Report, will still be forwarded to the public prosecutor, for further investigation and legal actions which will be formulated to be forwarded to the Court of Justice in order to cancel the debt, pay the damages to public patrimony and determine responsibilities.

Finally, the struggle for the official debt audit drafted in the Constitution continues...

http://www.divida-auditoriacidada.org.br/



Maria Lucia Fattorelli

member of the Committee and coordinator of the Brazilian Citizens’ Debt Audit Commission. Since the 4th April 2015 she is member of the Truth Committee on Public Debt.

Other articles in English by Maria Lucia Fattorelli (10)

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

35 rue Fabry
4000 - Liège- Belgique

00324 226 62 85
info@cadtm.org

cadtm.org