Understanding Profitable Ventures in Brazil

 OMG, when it comes to public enterprises, there are some major constraints that affect their role in economic policies. It's like, these constraints make their adjustment experience totally different from the private sector. Just sayin'. Yo, peep this: public enterprises started flexin' and be like, "nah, we ain't doin' that no more." When things were hella chaotic financially after a bunch of plans flopped, companies went all out on restructuring by jacking up prices and investing in lit indexed financial assets. OMG, like, firms started using the daily indexed overnight interest rates to figure out prices so they could make enough money to cover their prime and financial costs. The economy was, like, always at risk of hyperinflation, so they had to be smart about it. OMG, Luiz Gonzaga Belluzzo and Júlio Gomes de Almeida (2002, p.182) describe this thing as the "financialisation of pricing," which is like when pricing is totally disconnected from production costs and capital stuff and becomes all about speculation and stuff. OMG, as the financial mess got worse and costs started going up with interest rates, companies were like, "Let's be ahead of the game and raise our prices." 

OMG, like from '87 to '89, the mark-ups were totally on fleek and went up super fast, reaching a max of 92% (local private capital) and 62% (foreign capital) in '89. Lit AF!

OMG, like indebtedness only started in the mid-1980s, when the private sector was already done adjusting, even though before the crisis, public enterprises were just as geared as the private sector. SMH. Like, the debt of public enterprises totally skyrocketed because the government was low-key making its companies borrow from overseas to make up for the foreign reserves leaking. OMG, like, public enterprises' mark-ups were totally forced down to help economic policy stop inflation (Baer 1993; Werneck 1985; 1986). Yo, like, on top of that, the public enterprises be lowballin' their prices, which totally helped out the private sector. The public enterprises be doin' their thing in sectors that provide the basic stuff for industries, ya know? (LBC – Letras do Banco Central), and then, in 1987, Treasury Bills (LFT – Letras Financeiras do Tesouro) – which was like totally linked to the daily interest rate (overnight). With this lit indexation vibe, those public securities totally embodied inflation expectations for the next month, making the value of government debt like, almost immune to any inflation spikes. Moreover, these public bonds were hella liquid cuz they were like second-order banking reserves and could be "automatically" traded with the BACEN. OMG, during that time, there was, like, a major spike in financial costs for all the companies, but especially for the public enterprises. The basic policy of mad high interest rates along with decreasing vibes dictated the increase in firms' financial costs and the consequent fall in profitability. 

The operation of this mechanism allowed for a major flex in the average maturity of public bonds, going from like 28 months in December 1983 to less than 5 months in December 1989. It was lit!

Yo, like, those indexed bonds and the daily repurchase agreement thingy gave bondholders mad flex to dodge the government's attempt to lower public debt by kicking out monetary correction. In a nutshell, those mechanisms were like, totally clutch in protecting the real value of bondholders' wealth and making sure there was mad cash flow. They kept public bonds hella attractive compared to other risky investments, like foreign currencies, even when hyperinflation was going down. OMG, like from a public finances perspective, this totally meant that more and more money was being moved from taxpayers to bondholders. And it's not just that, public spending on interest payments was going up while investments were being neglected. SMH.105

OMG, like the neoliberal vibe is all about how in the 80s, the government was spending way too much and that's why we had those public deficits. But TBH, it turns out that the real reason Brazil's public debt got so big was because of the external debt negotiation, the strict adjustment policies, and all the perks given to the private sector to avoid dealing with the consequences. In fact, like, the underlying problems of public finances - that's, its contracting bias andhence the lack of a glow up industrial policy – were like totally worsened by the adjustment policies, the government became increasingly more fragile to flex the economy towards a renovating industrial structure with investments in infrastructure, let alone in training and employing a high-skilled (and more expensive) squad. OMG, the government totally gave in to the private sector, both financial and non-financial. They were living that rentier life, making bank on the rise of those indexed financial assets. It's like, so not cool.

The "Securitisation" of the Wealth of the Non-Financial Sector, like, whoa!

OMG, cuz of all the crazy adjustment policies, financial and non-financial corps came up with new ways to evaluate how well they're doing, which is like total financialisation. Their portfolios became hella similar to those of financial corporations and in both the measurement of performance became dominated by short-term financial gains stemming from lit indexed financial assets. The like, public debt thingy was, like, super important 'cause it was all about those financial assets that were, like, totally indexed. They were either these public bonds that were indexed daily (like, LBCs) or they were backed by them (like, any overnight bank deposits). Like, basically, the private sector was all like, "Yo, we gotta adjust ourselves," and the public sector was all like, "We're hella in debt." So it was, like, a symmetrical thing, you know? Table 37 shows that as far as profitability (profits after-tax/net worth) is concerned, the decade started off hella bad for non-financial firms. The profit vibes of Brazilian private firms took a major L between 1978 and 1983. The profitability of foreign firms also took a major L, but not as hard as others. To flex against these costs, private firms were like, "Nah, we ain't investing in that anymore," and they were like, "Yo, let's raise our prices to pay off our debts." Table 37 be like, in the mid-1980s, foreign firms and private national firms were already flexin' by lowering their debt, boosting their mark-ups, and making more bank.