Artigo publicado no livro Brazil in the Anthropocene: conflicts between predatory development and environmental policies , organizado por Liz-Rejane Issberner and Philippe Léna (Eds.) – New York, Routledge, 201, 368p.- ISBN 978-1-138-68420-1 and 978-1-315-54406-9

Download (word, 21 páginas) em:


Financing sustainability: where has all the money gone?


Ladislau Dowbor

7 December 2015

“The job of ensuring that the financial system is fit for sustainable development
has just begun” – UNEP – Aligning the financial system with sustainable development

“There is no shortage of money waiting to be put to productive use. The problem is that the world’s financial markets, meant to intermediate efficiently between savings and investment opportunities, instead misallocate capital and create risk”. – Joseph Stiglitz, on the 2015 Addis Ababa Conference on Financing for Development

“Banks should return to doing what they were created to do in the first place: offer a safe environment for people’s savings and provide capital to business for development purposes”. – C. J. Polychroniou


The overall challenge we are facing is not difficult to define: on one hand, climate change, the destruction of wild life, overfishing in the oceans, the cutting down of rainforests and so many other slow motion catastrophes demand deep-pocket investments to save the planet; on the other hand, studies on inequality and social dramas are showing with very clear figures that the economic governance is out of control. In short, we are destroying the planet for the benefit of the few. This doesn’t work. And it is not getting fixed: the earth does not vote, nor do the poor or the next generations that will bear the disasters we are creating. It is a lopsided democracy.

Yet we have the necessary financial resources and the knowledge to face both the environmental and the social inclusion issues. The world presently produces 73 trillion dollars of goods and services for 7,2 billion inhabitants. In rough figures, this means over three thousand dollars per month for every four person family. Total in the accumulated personal wealth (houses, cars, savings etc.) and built infrastructure (roads, dams etc.), and we see every human being could live a reasonably decent life. From this point of view, Brazil is situated exactly at the world average. But of course, some people are more average than others, and this goes for countries and cities.

Money is just paper. But those who have access to it in large figures, can buy a villa in Nice, fly a private jet, invest in a productive startup, or just buy other papers. Overall, the villa in Nice and the private jet won’t make a big difference. Productive investment does make a difference, because invested money becomes growth inducing capital: it creates goods and services, and generates jobs, which in turn will expand demand and markets for the created goods and services. The wheels will turn. These were the (relatively) good times. But nowadays buying other papers is the real thing where big money is made.

As we entered the 1980’s, investing in papers started to generate more profit than investing in production. Centuries after the Venice bankers, we rediscovered the golden path: pecunia pecuniam parit, money begets money. This is somewhat difficult for the English speaking world to grasp, since buying dollars or options in derivatives, gambling on what will go up or down, is called investment just like building a dam or creating a factory. In French the distinction is clear: investissements is one thing, placements financiers another. In Brazil, investimento and aplicações financeiras. The Economist, at a loss to properly address money clearly going into speculation, such as gambling on the variation of different financial papers without creating any new wealth, called them speculative investments. But the basic issue is that getting rich and investing in production are now very much divorced. This is all that “world’s financial markets”, in Stiglitz’s words above, is about. Pecunia pecuniam parit.

The world is awash with information on what should be done. From Our Common Future to The Future we Want, from the Millenium Goals to the Sustainable Development Goals, and the Paris COP21 Summit, the road we must take has never been so clear. But in the present rules of the game, when putting money in the world’s financial markets earns big returns, while putting money in clean production or productive inclusion of the poor earns warm smiles, things will just not work. Not because people are evil, particularly at the top, but because an institutional investor managing a huge pension fund is bound to maximize returns or lose his job. And as it seeks maximum returns, it will not hesitate to squeeze the real-economics productive firm to the limit.

The engineers at Samarco know how to build a dam and understand risk evaluation, but Samarco is controlled by Vale and Billiton, which manage huge financial systems where financial returns are way above environment or social concerns in corporate governance. The huge disaster in Mariana, the worst in Brazilian history, is not very different, in terms on how decisions are made at the top, from the Volkswagen scandal on toxic emissions, or the already forgotten Enron scam, the irresponsible speculation frenzy at Lehman Brothers, or the Libor and other fraud involving practically every member of the top financial institutions club.

The basic challenge is how to build new rules of the game, so that the convergence between environmental, social and economic interests can be restored. In Brazil, private pension funds have roughly 200 billion dollars to work with. They seek a basic return of 5,5% a year to cover future pensions payments. This money could be invested in the small and medium enterprise to stimulate production and jobs, or in new less disruptive technology in agriculture and so forth. This would stimulate economic growth and better cover our needs in the future, as well as improve sustainability, income and social stability, the so-called triple bottom line. As it is, they can simply put the money in government bonds which in 2015 pay 14.25% a year, ensuring total liquidity, no risk, good earnings. The government pays this interest from the taxes it collects from the population. Thus the public pays for private pension funds with public money, and the wheel turns without any money going into what would be useful for society.

This simple example shows that the issue is not with the lack of financial resources to face our challenges, but with what we can call the governance, or the decision process, concerning their management. The financial flows have been cornered to serve financial intermediaries, instead of serving sustainable development. If we do not face this challenge, no amount of discussions will help. It is not a question of sequestering the villa in Nice, but of generating rules of the game where the staggering amount of unproductive money is put back to work for society, and for the earth, and for the future generations. In this paper, we shall concentrate on the concrete example of how financial intermediaries in Brazil have stalled 20 years of progress, and thrown the country into recession.


The international dimension

But first we must have a look at the overall situation in this area of finance. No country is an island in these days, and this is particularly true for money, which has been reduced to bits, travelling in fractions of seconds and huge amounts on the waves. Dematerialized money flows in the global space, while regulation is fragmented into roughly 195 countries with different governments and a diversity of regulations. Global finance flows in unregulated space, notwithstanding the strong declarations during  successive G20 meetings. No global regulation means no government regulation, since if a central bank decides to regulate big money, it will simply flow somewhere else. The huge title on the IMF publication Finance&Development cover, “Who’s in charge?” says it all. Nobody is in charge. Actually, the financial corporations are in charge.

One of the few positive results of the 2008 ongoing crisis is that for the first time we have some solid numbers concerning the financial world. The Swiss Federal Institute of Technology (ETH) presents the first figures on how the global network of corporate control works. Basically, in the corporate world, 737 groups control 80% of the system, while a nucleus of 147 corporations controls 40% of the system. Of these, 75% are financial intermediation groups. These are staggering figures, and the research is generating ample debate. With such a degree of concentration of economic power, we need no conspiracy theory. And the degree of concentration also generates systemic risk, because of the huge volatility and the amounts of resources involved. The sheer size of the groups involved in worldwide different activities makes rational management impossible, and the political power they wield makes democratic process a fiction.


Example of a few international financial connections. In red the European groups; in blue the North American ones; other countries in green. The dominance of the two first is evident, and coincides with the map of the present financial crisis. Only a small part of the links is shown here. Source: Vitali, Glattfelder e Fattiston,


The crisis has also highlighted the importance of tax havens and illegal money in general. James Henry, former McKinsey chief economist, estimates the overall value at between 21 and 32 trillion dollars, roughly between one third and one half of world GDP. In a special report The Economist settled on the probable figure of 20 trillion. Most importantly, it shows that the illegal money is not stacked in some paradisiac islands, but basically in Delaware, Miami and London, and managed by the same big  banks which rig the Libor and Euribor figures, engage in money laundering and so forth. Basically the same financial groups presented in the ETH study.


The international dimension, since the 2008 crisis, if not better regulated, is now at least better documented. The crisis and the evident chaotic behavior of the financial system  stimulated a collection of basic data on international finance, which interestingly, always eluded the International Financial Statistics of the IMF. In other studies we presented the detail of each of the new research carried out, with only the main results summarized here:

Research by the ICIJ (International Consortium of Investigative Journalists) has identified many names of companies and owners of fortunes, with details of instructions and transactions progressively released as they work with the immense files received. In November 2014, they published the massive tax evasion scheme of multinationals, using the tax haven that Luxembourg has become. The amounts of evasion by Itaú and Bradesco are presented in detail. ( ICIJ, 2014) (Fernando Rodrigues, 2014)

The study by Joshua Schneyer, systematizing Reuters data shows that 16      international business groups control the bulk of intermediation of planetary commodities (grain, energy, minerals), mostly based in tax havens (Geneva in particular), creating the current framework for financial-commercial speculation on products that make up the blood of the world economy. Derivatives of this speculative economy (outstanding derivatives) surpass 600 trillion, for a world GDP of 73 trillion. (BIS, 2013) (Schneyer, 2013)

The Credit Suisse discloses the analysis of the large world fortunes showing the concentration of ownership of 223 trillion dollars accrued (accumulated assets, not the annual income), that is to say, basically 1% of the wealthiest own about 50% of the wealth accumulated on the planet. The most commented figure in the 2015 Davos economic forum was that 80 persons have more wealth than the bottom half of the world population. (Oxfam, 2015)

The drain on productive activities, on the side of consumption as well as investment, is planetary. It is part of an international machine that since the liberalization of financial regulation, by the Reagan and Thatcher governments in the early 1980s, until the settlement of the main regulatory system, the Glass-Steagall Act, by Clinton in 1999,  generated an international free-for-all.

Thus we have a deformed planetary system, and Brazil is just playing its part in the global process of capital concentration through financial and commercial intermediaries. Information is far from complete in this shadowy area. However, two studies give us some orders of magnitude.

The mentioned study by the Tax Justice Network gives us some basic figures of capital amounts in tax havens by regions. In Brazil, the order of magnitude is of 519.5 billion dollars, which represents about a third of Brazilian GDP. (First line, sixth column of figures on table below). This is naturally the stock of Brazilian money in tax havens, not the yearly flow, but it represents a huge amount, and the government is fighting for its repatriation.




As such, Brazil is not isolated in this planetary system, nor is it particularly corrupt. But the whole set-up created is indeed heavily corrupted. Data for Brazil, 519.5 billion dollars in terms of offshore capital, are impressive, ranking fourth in the world. These resources should pay the taxes that would allow expanding public investment, and should be applied in fostering the economy where they were generated.

A second particularly interesting study is from the Global Financial Integrity, coordinated by Dev Kar, Brazil: capital flight, illicit flows and macro-economic crises, 1960-2012. This is a drain   of resources by evasion estimated at 100 billion reais per year between 2010 and 2012 (over 2% of GDP). These are resources which in turn feed a good part of the 519,5 billion dollars in tax havens seen above. According to the report, “the [Brazilian] government should engage more efforts to combat both under-invoicing of exports and overpricing of imports, actively adopting additional deterrent measures rather than retroactive punishment.” Here, multinational companies prevail. Kofi Annan believes that this mechanism drains about 38 billion dollars a year from the African economies. The mechanism is known as mispricing, or trade misinvoicing, and has been intensely debated in the January 2015 African Union meeting, with the yearly evasion estimated at 53 billion dollars. (GFI, 2014 and 2015)

First of all, it is important to understand the limits of government’s action. At international level, while the American and European elites will indeed continue to tolerate tax havens, including in the USA itself as in the case of the State of Delaware, and in Europe as in the case of Luxembourg and Switzerland, real control will be almost impossible. Tax evasion became too simple, and the ability to locate the illegal capital is remote. The order may, however, be significantly improved by controlling the outputs, transfer pricing and the like. The GFI report mentioned above, points out these possibilities and acknowledges strong advances by Brazil in recent years. On an international level, the BEPS (Base Erosion and Profit Shifting) endorsed by 40 countries representing 90% of world GDP, gives us some hope as to the onset of a reduction of the planetary system of tax evasion by transnational corporations. (OECD, 2014)

The numbers have to be put in perspective. The Rio+20 summit hoped to raise 30 billion dollars to fund sustainability worldwide, while Brazil alone has over 500 billion dollars in tax havens, and the overall tax haven money is more than 20 trillion dollars. The Paris COP21 summit on climate change is hoping to drum up 100 billion dollars until 2020. Our hopes are to depend on Bill Gates or Mark Zuckerberg? However generous or simply conscious some people can be, we need a social and political compact to build sustainable development, and the figures that are being discussed are ridiculous. To quote Siglitz again, “new geopolitical realities demand new forms of global governance”.


Sustainable development in Brazil

Brazil has come a long way. Ending the corporation-supported military dictatorship in 1985 brought us back to civilization, the 1988 Constitution generated basic civil rules of the game, the breakdown of hyperinflation in 1994 (it reached 80% a month!) brought us back to normal accounting and planning practices. And in 2003 the Lula government organized the first countrywide and long term integral problem to fight poverty and social exclusion. Bolsa Família is widely known, but the Ministry for Social Development coordinated 149 such programs, involving Luz para Todos which brought electricity to whole deprived regions, a more decent minimum wage law, large scale stimulation of formal jobs, social security for people in informal and rural activities and so forth.

The results can be seen in the large scale study by IBGE (the Brazilian institute of Statistics), IPEA (the national economic research institute),  FJP (an academic research foundation) and UNDP. The results are impressive. In 1991, 85% of the 5570 municipalities in Brazil were listed in the lowest Human Development Indicators, the “”very low” class, under 0,500 HDI. In 2010, only 0,6% of the municipalities remained in this class. Life expectancy rose from 65 years in 1991 to 75 in 2014. Brazilians earned ten more years to complain. Child mortality fell from 30 to 15 per thousand. Overall 36 million people were pulled out of poverty, the Gini inequality indicator fell from 0,58 to 0,49, curiously approaching the Gini indicator in the US which reached 0,45 and climbing.  In 1991 only 13% of 18-20 youths had completed secondary schooling, in 2010 the proportion reached 41%. In two decades, coming from very low, Brazil has been transformed. And yet, so much has yet to be built.

From the environment point of view, the picture is not so rosy. The basic comforting figure is that the destruction of the Amazon forest fell from 28 thousand square kilometers in 2002 to roughly 4 thousand – still a tragedy, but a huge victory, presently being pushed back by the agro-industrial complex. And Brazil covers around half its energy consumption with clean sources, well above the world average.




According to Emilio La Rovere, “the participation of renewable sources in domestic Brazilian energy supply (47%) is well above the world average, of 12.9% in 2006, and higher than the average of OECD (Organization for Economic Co-operation and Development) countries, of 6.7%, due to renewable biomass and hydroelectricity.”

On the other hand, it is hugely difficult to face the necessary change in the consumption part of the energy matrix, where car corporations have been steadily pushing form more cars in the place of electric mass transportation systems, and government has paid only lip service to other energetic alternatives. Brazil has only recently invested in railroads and ship building, and transporting commodities over large distances by truck is obviously not only very expensive but deadly in terms of CO2 emissions. The rapid urbanization – Brazil presently has 85% of its population living in cities – has raised the overall energy intensity of development.

Other key issues are also daunting, such the overuse of chemicals in agriculture, with toxic substances reaching an absurd level on the consumer’s table, the impressive lack of basic sanitation in more than a third of households and so forth.

The general picture is that the recent process shows very strong progress in social, economic, and less so environmental issues, and sustained for two decades, and this has deeply changed the quality of life, particularly for the poorer half of the population. The basic mechanism was linked to the convergence of strong public social services and conditioned transfers to the poor and to the backward regions of Brazil, while the traditional oligarchy found its economic interest in the expansion of the internal market. High international prices for commodities helped. But the marriage would not last. Understanding what went wrong, and how a very solid and long term virtuous cycle was interrupted, is important not only for Brazil, but for different initiatives and countries which have invested in sustainability and inclusive development.

Thus the important initiative to promote inclusion, jobs and unrequited transfers to the poor during the Lula and Dilma administrations has produced excellent results. But the financial system has caught up with the initiatives and is stalling the Brazilian economy through huge interest rates on consumers, entrepreneurs and the public debt. The impressive financial profits are invested not in the real economy, but in other financial papers internally and through tax havens. The mechanism is certainly not very sophisticated but it drains the resources we need for sustainable development. In John Kenneth Galbraith’s words, “the way banks earn money is so simple that it is repugnant.” In 2015 we defined the Sustainable Development Goals in New York and  the  climate change goals in Paris. We did not define much in the Addis Ababa summit on how to fund these goals. Regaining control and ensuring our resources are used for these goals is essential, however unpleasant and down to earth the money business can be.


The gears of the financial system 

The different parts of the system are well known, what we have done here is to put them together so as to show how the gears work together and the paralyzing impact on the Brazilian economy. We will look at credit in commercial chains, credit cards, banks (both for persons and legal persons), the public debt, taxes and financial outflows. Much research is still to be done with this outlook, but the orders of magnitude of how the real economy is being drained by financial intermediaries becomes quite clear. Consider this as the Brazilian dimension of the global financial mess. Banks created the 1929 world crisis, the 2008 crisis we are still scrambling out of, they broke so many countries, generated the austerity mess to compensate their losses with our taxes, why should they be shy in Brazil? Not only CO2 goes up in the air.

Let us start with a quick overview so the systemic aspect is clear. The numbers are quite clear. According to the Brazilian Central Bank, outstanding credit in the banking system in July 2015 reached 3,111 billion reais (roughly 840 billion dollars), 54.5% of GDP. The average interest rate on these operations was 28,4% (the European equivalent would be around 3% to 5%). This means the volume of interest money banks reap on this credit represents around 880 billion reais, 15,4% of GDP. Such a mass of financial resources captured by intermediaries deserves a closer look. (BCB, ECOIMPOM, 08/2015) Therefore, it is important to understand the origin and destination of these resources. We will call this the integral financial flow.

Consider the installment plans in commercial chains such as Casas Bahia. When you buy household ware on credit you will be paying a little over 100% interest. Since so many, particularly the poor recently incorporated into the economy, have to buy on credit, their final purchasing capacity will be cut by half.  Add to this the fact that intermediaries charge an average 400% on credit card ‘revolving credit’ and more than 230% on overdraft, and we see that well over half the purchasing power of consumers is drained here to financial intermediaries, thereby sterilizing much of the economy’s stimulation on the side of demand.

The result is that the population becomes heavily indebted while purchasing very little. In March 2005, 19.3% of the average family income went to debt service. Ten years later, almost half this income, 46.5%, is drained into the financial system. The installment plan retailers present to the consumer “fits in your pocket” according to the TV commercials, but it overloads that pocket for a long time. Thus the demand stimulus on the economy is jammed.

Similar results are found on the investment side of the process, because if in the reproductive cycle most of the profit goes to financial intermediaries, the producer’s capacity to expand production is thwarted, with the double restriction of reduced demand and restricted self-financing: they get paid very little for their product, when facing the huge commercial chains which have become basically financial intermediaries more than providers of commercial services. This hits particularly the small and medium enterprise.

In banks, personal credit average interest rate is 103% according to ANEFAC (Associação Nacional de Executivos de Finanças, Administração e Contábeis), which is staggering. Interest for legal entities is also prohibitive, in the order of 40 to 50%, and to start a business under these conditions is not feasible. There are official credit lines in public banks which operate with more reasonable interest rates, but they only partially compensate for the appropriation of results by the private financial intermediaries.

The third item in the gear is the “Selic” rate, the official central bank interest rate paid to owners of the public debt. With a GDP of 5,5 trillion reais, one percent of GDP is 55 billion. If the debt service is set at 5% of the GDP, for example, this means over 250 billion reais of our taxes are transferred essentially to financial groups, each year. For 2015 this figure is expected to reach 400 billion reais, most of it obviously accruing to the existing debt, carving a deeper hole. Thus, a very significant part of the government’s capacity to finance more infrastructure and social policies, another key mechanism to stimulate the economy, is sterilized.

Furthermore, the high “Selic” discourages productive investment in companies as it is easier – zero risk, total liquidity – to profit from the huge public interest rates,  14,25% for an inflation of 8% in July 2015. And for banks and other intermediaries, it is easier to profit from public debt than to promote the economy by funding productive initiatives, where you have to identify opportunities and make your project analysis homework. The large profits in financial intermediation end up by contaminating a whole set of economic agents, all sold in the name of protecting the population from the inflation monster, the endlessly repeated argument in the media, whether popular or specialized.

It is thus understandable that we have this strange situation of a 12 months financial profit growth of the giant Itaú Bank of 22% while GDP growth remains stalled or retreating.  The economy is being drained by installment plans, credit card costs, bank interest rates for personal credit, interest rates for legal persons and the high “Selic” (official) interest rate. This is the Brazilian dimension of the global financialization. In the global financial speculation system, someone has to bring real value in, and this is how it works in Brazil. And through Santander, City, HSBC and other international banks heavily involved in Brazil, but also through the international outreach of Brazilian banks such as Bradesco and Itaú, the country joins the world casino.

To close the circle, we have tax evasion. With the global crisis we have little more than some hand-slapping as regards the financial regulation system, but at least we have more information: as we have seen, Brazil has roughly 520 billion dollars, about a third of its GDP, according to the Tax Justice Network research. Which means that resources which should be reinvested in the development of the economy are not only diverted to financial games internally, but also migrate to tax havens where they do not pay taxes. For example, we now have some data on Itaú and Bradesco in Luxembourg, while the Global Financial Integrity studies show over 35 billion dollars (roughly 2.3% of GDP) illegally drained from Brazil every year through misinvoicing and mispricing. In another line of investigation, ICIJ (International Consortium of Investigative Journalists) has identified around 8600 Brazilian fortunes in the Geneva HSBC asset management unit.

Legal or illegal transfers to tax havens represent only the external part of the drain, since the Brazilian tax system is heavily skewed, with the poor paying 32% of their income in taxes, while the rich pay an average 20%.  Thus the regressive Brazilian tax system (there are no taxes on fortune and inheritance taxes are ridiculous) represents a formally legalized internal tax avoidance system, while the tax havens solution managed by the banks themselves represents the external mechanism. Join these various pieces together, and the dimension of the systemic deformation becomes quite obvious.

Brazil has made a huge effort to include the poorer one third of the population into the economy, around 60 million people. The financial intermediaries managed to paralyze the economy and to thwart the growth impact that this enormous effort had generated. The financial intermediaries adapted quickly to siphon away the new economic capacity at the bottom of the social pyramid, and the new technologies allow financial corporations to reach out cheaply to the small money which traditionally did not interest the banking system.

The numbers we present here unfortunately match. The data are known, all we have done is to put together different lines of research that usually do not communicate, with help coming from different institutions. Interestingly, organizing the data to evaluate the integral financial flow system had not been tried in Brazil. Most people comfortably sleep with the idea that financial mechanisms are beyond comprehension. But it is not so complex to present how the gears work together, and to understand how the financial system manages to push a big economy down the drain. In fact, we need many more people to understand how the economy is being deformed. No GDP can progress with such an amount of resources drained away from the productive cycle, out of the real economy. And no sustainable development will be achieved if we do not control our resources. This is obviously not a particularly Brazilian issue, but understanding how it works in a concrete country may help understanding also more global issues.

To wrap up the logic of this mechanism, consider that change towards a less unequal for society and less destructive for the planet development process involves simultaneously economic and political change. If the economy is growing, economic change is made politically more manageable. If the economy is stalled, and the rich earn less money, this is called a crisis. Ten per cent of world population going hungry, and roughly 5 million children dying from ridiculous causes and particularly from lack of access to food or to clean water, is not called a crisis, it is a challenge to be discussed. French economist Delavoye reminds us that it is easier to take essential resources from the poor than superfluous resources from the rich.

Curiously, we must make the present system work so that we can change it, however dangerous this may be. In this line, consider that economic growth in the present system relies on four engines: mass family consumption to stimulate the demand side; private investment to produce more goods and services; public investment in social policies and infrastructure; and the external sector, the so-called export driven growth. In Brazil, the first three engines of growth have been stalled by financial costs, while the last one, with the collapsing world commodity prices, only deepens our woes. Here we will concentrate on the first three. Let it be sufficient to say that focusing on exports is no alternative in the present chaotic world commodity instability.

In this end of 2015, the Dilma government is experimenting with a “fiscal adjustment” centered on the reduction of public expenditure, which bankers love, but a broader fiscal and financial adjustment is unavoidable if we want to put our economy on its feet. The consumers, the real economy entrepreneurs, and the public administration in its capacity as provider of infrastructure and social policies, could be winners in the straightening up of a deeply skewed system. But by trying to change the financial system, she started a political war.



A shop in Joinville: The “pocket-sized” installment is in big letters. By legal commitment, the total value and interest rates are shown, but in very small letters: you pay more than the double, interest of 122%. You can buy today, but the consumption capacity is curtailed for two years. The producer receives little, and will invest little. Further, the consumer can buy little due to the burden of interest rate. It is the so- called toll economy that jams the productive system, on the producer’s side as well as on the consumer’s, to benefit the intermediary. A similar commercial network in Europe, MidiaMarkt, charges 13,4% a year, not 122%! A 600 euros purchase in 18 installments will show a final total cost of 699 euros. And they have good profits.


Installment plans in commercial chains

Let us begin with the interest rates to final borrower, an individual, as practiced in trade, the so-called installment plans. The ANEFAC (National Association of Finance, Administration and Accounting Executives) shows the data for June 2014:

First of all, a methodological observation: in Brazil, the interest is almost always presented as “monthly rate”, as shown in the first column above. It is technically right, but commercially and ethically wrong. It is a way of confusing the borrowers, because no one is able to mentally calculate the compound interest. Worldwide, the annual interest rates are used. The Itaú Bank, for example, presents on its website interest rates only in their monthly format, since per year they would show to be as extortionate as they truly are. In the photo above we see the TV set offered at an interest rate of 6.87% per month and only in small print do they show the real interest rate of 122 % per year, literally an assault.

The average interest charged on installment plans, of 72.33%, simply means that this type of trade, instead of supplying decent commercial services, essentially became a banking service. It takes advantage of the fact that people do not understand the financial calculation, and have little cash availability which opens the way for extortion. Here, the retail seller of “Household Items”, by charging interest of  104.89% jams the demand, as  it will be curtailed for 12 or 24 months  while installments are being paid,  and hampers the producer, who receives very little  for the product. It is what we have described as the toll economy. Ironically, the stores announce that they “facilitate”.  In this whole procedure, consumer purchasing power is divided by two, and the reinvestment capacity of producer is at a standstill.


Interest rates for personal credit

Consumers do not restrict themselves to buy by installments, whose average rate of 72.33% is reproduced in the first line below. They also use credit cards and other financial mechanisms little understood by the vast majority of consumers.


Based upon the June 2014 data, these ANEFAC figures show found that financial intermediaries also charge 238.67% on the credit card, 159.76% on overdraft, 23.58% in car purchases. Personal loans cost on the average 50.23% at the banks and 134.22% at the financial institutions.  We are leaving out the street usury that exceeds 300%. Inflation in Brazil at the time was about 6%.

It is noteworthy that the ABECS (Brazilian Association of Credit Cards and Services Companies) considers that the average interest on credit cards is 280%, thus well above ANEFAC assessment. The ABECS considers that 50.1% of consumer credit is taken on  cards, 23.5% in payroll loans, 13.1% in installment sales of vehicles, and 13.3% “other.” In the case of cards, it concerns around 170 billion reais. It is important to keep in mind that even without entering into card’s credit, typically, a store has to pay about 5% of the value of purchases to the bank, in addition to rental of the machine. These 5% may be less for large stores having bargaining power with the financial system. Nevertheless it is a giant private tax on half the consumer credit, drastically reducing consumer purchasing power.

Since it is difficult to believe the system has been so grossly deformed, you can find below the interest rates Banco Santander, which is where my university pays me, offers in the mailing sent in January 2015.  For example, the “Total Effective Cost” of extending payment on my credit card (Visa Santander) is 633,21%.

Source: original mailing from Banco Santander to clients  in Brazil, January 2015; note the 633% on revolving credit.


The ABECS considers that this portfolio “is responsible for fostering consumer credit in the country.” This is a positive way of presenting the issue, however it encourages credit, not consumption. In the case of frequent access to revolving credit, people pay three or four times the value of the product. Miguel de Oliveira, Director of ANEFAC, summarizes the situation well: “The person who cannot pay the bill and needs to   pay step by step, or enter into the revolving credit, is actually funding the credit card debt with another type of credit. The problem is that this debt is endless. People end up not realizing the interest charged” (DCI. B1. 20/08/2014).

Obviously, with these interest rates, people, when buying on credit, spend more on interest than on the actual value of the product. We do have figures on how deep in debt families are (as seen above, roughly 46.5% of family income is deviated to debt service), but this is not sufficient information. Because in this instance, families not only become heavily indebted, they do so buying very little. The numbers are clear: in practice, they pay almost double, sometimes even more. In other words, they buy half of what their money could buy, if it were in cash. And the cash purchases already include the profits of commercial intermediation.

The villain is not the taxes we pay, which is always what the media would like us to believe (and government bashing is such an easy sport). Albeit the overwhelming burden of indirect taxes only worsens the situation, it is the shift from the purchasing power to the payment of interest that really dampens the economy. Families were spending much more, as a result of the high level of employment and increased purchasing power of the grassroots. However, the interest rates sterilized the economy’s dynamic capacity that this mass consumption could represent. Thus one of the main vectors mobilizing the economy is jammed. An economy of financial intermediaries was generated. Families that need goods and services are harmed, and indirectly, the effectively producing companies see their inventory grow. Much of the impact of economic strengthening by redistributive policies the government has stimulated is lost. Payroll loans help, but reach only 23.5% of the consumer credit (DCI. 2014), and are also found within the range of 25 to 30% interest, which seems to be reasonable for Brazilians only because of the exorbitant levels affecting other forms of credit.


Interest rates for legal persons

Interest rates for legal entities do not lag far behind. The study of ANEFAC presented an average rate of 50.06% practiced per year, 24.16% for working capital, 34.80% for discount of trade notes, and 100.76% for secured account. No one in their right mind can develop productive activities, start a business, face the time-to-market and balance accounts paying such interest. Here, the private investment is directly affected.



Banking activity may be quite useful to finance economic initiatives that will be profitable. But this implies that the bank will use the money from deposits (besides of course the leverage) to promote business initiatives, whose outcome will bring about legitimate profit to the investor, further permitting repayment of the loan. The basic activity of a bank would be to add up depositors’ savings to convert them into financing for economic activities, but this is no longer within the scope of activity of these banks. The economy, blocked on the side of demand by the type of consumer credit seen above, in the banks as well as in installment plans, therefore is equally blocked on the side of financing to the producer. Thus, demand as well as investment, the two main engines of the economy, are jeopardized.

Here, the rules of the game become extremely distorted. Large transnational corporations now have unbelievable comparative advantages as they may be financed from abroad with interest rates typically 5 or 6 times smaller than their domestic competitors. Many Brazilian companies may find funding at rates that could be considered normal, for example by BNDES, and other government banks,  but without the capillarity  which would  allow  irrigation of the huge mass of small and medium size companies scattered throughout the country. It is noteworthy that in Germany 60% of savings are administered by small local savings banks (sparrkassen)that generously irrigate small economic initiatives. Poland, which according to the Economist best faced the crisis in Europe, has 470 cooperative banks that finance activities of the real economy. One of the country’s leading economists, J. Balcerek, comments wryly that “our outdated banking system saved us from the crisis.”


Interest on the public debt

A third deformation is brought forth by the immense drain on public resources through the public debt. In 2015, roughly 7% of GDP will be paid from our taxes to financial intermediaries which invest in the public debt. This money could instead be used to finance public investments, infrastructure and social policies. This is very convenient for banks because instead of having to identify good business projects, to promote investments  and to evaluate and follow up productive initiatives, in short, to do their homework, they invest in government bonds of high yield, total liquidity,  with no risk, ready cash,  and a very attractive  profit. Thus the public tax system is used to transfer our taxes to banks, with no productive impact, on the contrary, by draining public investment capacity.


Here, the effect is doubly detrimental: on the one hand, because with the profitability achieved with simple investment in public debt, banks no longer seek to foster the economy, but make investments in government bonds instead of irrigating the economic activities with loans. On the other hand, many productive companies, instead of investing more also apply their surplus in government bonds. The economic machine thus becomes hostage to a system that is profitable for those who invest in financial papers, but not for those investing in the real economy. For the government, it is even comfortable as it is easier to borrow than face the so badly needed tax reform. In 2015, the expected toll on the government is expected to reach 400 billion reais, 7% of GDP, bringing to a standstill the third engine for an economy to thrive, which is government capacity to finance infrastructures and social policies.


A systemic deformation

This has been going one for quite a few years, gradually squeezing out productive activities. The table below shows that the real rate of interest to individuals (adjusted for inflation) charged by HSBC in Brazil is 63.42%, while it is 6.60% by the same bank for the same line of credit in the UK. For Santander, the corresponding figures are 55.74% and 10.81%. For Citibank they are 55.74% and 7.28%. Itaú charges solid 63.5%. For legal entities, a vital area because it would involve promoting the productive activities, the situation is equally absurd. For a legal entity, HSBC, for example, charges 40.36% in Brazil, and 7.86 in the UK. (IPEA, 2009)

An IPEA study comments: “For loans to individuals, the differential may be almost 10 times higher for the Brazilian in relation to the credit equivalent abroad. For legal entities, the differentials are also worthy of attention, since they are damaging to Brazil. For loans to companies, the cost difference is smaller, but still it is more than four times higher for the Brazilian. ”

We therefore face a structural deformation of the financial intermediation system. There is no great mystery in the process: the global financialization, with its various forms of organization depending on the country and the laws, acquired specific methods to bleed the economy in Brazil, a national dimension of a nowadays planetary deformation.

The Brazilian Constitution, in Article 170, defines as principles of economic and financial order, among others, the social function of property (III) and free competition (IV). Article 173, paragraph 4, states that “the law shall repress the abuse of economic power aimed at domination of markets, elimination of competition and the arbitrary increase of profits.” Paragraph 5 is even more explicit: “The law, without prejudice to the individual responsibility of the legal entity leaders, will set forth the responsibility of the latter, liable to punishments compatible with its nature, for acts performed against the economic and financial order and against the people’s economy.” Cartels are illegal. Exorbitant profit without corresponding productive contribution will be “repressed by law” with “compatible punishments”.

The practical result is a systemic deformation of the entire economy, which jams the demand on the consumption side, weakens investment, and reduces the government’s ability to finance infrastructure and social policies. If we add the deformation of our tax system based mainly on indirect taxes (embedded in prices), with a fragile burden on income and assets we have, here, the complete framework of an economy damaged in its foundations. After an impressive progress during the Lula and Dilma administrations, it is presently paralyzed by a less and less sustainable dead weight.


Balancing the system

Internally, the measures cannot be straightforward. ANEFAC clearly states the shortcomings of a system that is formally ruled by private law: “We emphasize that the interest rates are free and they are stipulated by the financial institution and there is consequently no price control or ceilings for charges made. The only commitment for the financial institutions is to inform the client which fees will be charged should any   type of credit be required.” Of course, as it is a cartel, the credit borrower has no choice. The ANEFAC recommendations are very simple: “If possible delay purchases in order to have money to buy the same thing with cash payment avoiding interest.” In other words, do not use credit. This, recommended by the “Association of Finance Administration and Accounting Executives”, is impressive.

However the government has powerful weapons. The first is to resume the gradual reduction of the “Selic” official interest rate, which would force banks to seek alternative investments, bridging the gap between the financial system and entrepreneur initiatives, and reducing the outflow of public funds to the banks. The second is to reduce interest rates to end borrowers in the network of public banks, as was tried in 2013, but this time persisting in the dynamics. It is the best way to introduce market mechanisms in the financial intermediation system, contributing to weaken the cartel and forcing it to reduce the stratospheric interest rates: the final borrower would again have some options.

The third is to rebuild the fossil tax system : the objective is not to raise taxes, but to rationalize their incidence. The INESC research shows that “in Brazil, the tax on assets is almost irrelevant, since it is equivalent to 1.31% of GDP, accounting for only 3.7% of the tax revenue of 2011. In some of the central capitalist countries, taxes on assets represent more  than 10% of tax revenue, for example, Canada (10%), Japan (10.3%), Korea (11.8%), Great Britain (11.9%) and the USA (12,15).” (INESC, 2014, pg.21) If we add the low incidence of income tax, and the fact that indirect taxes represent 56% of the tax collection, we have   a situation that claims for change.



“It should be stressed that the tax burden is very regressive in Brazil as it is
concentrated on indirect and cumulative taxes that mostly burden the workers as well as   intermediation system, the population needs to be properly informed. One of the most awesome aspects of this vital area for the country’s development is the ominous silence not only of the media but also of the academia and research institutes, on the scandalous process of deformation of the economy by the financial system.”

Whichever way we look at it, the fact is the Brazilian economy is being drained by intermediaries who produce little or nothing. If we add up the interest rates family consumption, the cost of installment plans, interest rates on business credit, the drain through the public debt and the tax evasion by means of tax havens and illicit transfers, we have a structural deformation of the production processes. Efforts to boost the economy while dragging this speculative waste load bound to our feet are not sufficient.  There are more ills in our economy, but here we are addressing a huge mass of resources, which are necessary for the real economy. It is time that the business world itself – that actually produces wealth – wakes up to the imbalances, and assigns responsibilities where they should be. Ensuring the productive use of our financial resources has become a key issue for Brazil.


Sustainable economics

Here we concentrated on the money side of the issue, based on the Brazilian example. We can easily see that the different gears of the financial system, both private and public, not only do not contribute to sustainable development, but managed to paralyze the very positive first steps. Basically, not only is the financial corporate world not interested in stimulating sustainable development, but it actually diverts money from the existing production process into financial gains, and manages not to pay taxes by means of tax havens. The political and moral legitimacy of this process is nil.

In 1997 Congress approved a law which allows corporations to fund elections. In Brazil we now have organized groups of congressmen linked to the car industry, to banks, to big constructors, to the four media giants, to the national and international agro-industrial complex. There remains very little citizen representation. This large scale corruption of the political process has been declared illegal by the supreme court in 2015, for the next elections. But the present Congress has been approving laws that support corporate interests, while taking down democratic progress we had managed to build during the last decades. Policies supporting the poor and promoting sustainability are in the front line of attack.  What little progress we managed to make has led to an organized rightwing attack which generated, at of the end of 2015, to economic ruptures and political chaos.

Going back to the beginning of this paper, our challenges are unfortunately easy to define: we are facing the necessary paradigmatic change in the way we deal with the planet, and this means we have to use our resources to fund another type of development; and we must make sure that this development is for everyone. We have the technologies, the money, and people who know how to go about it. But we do not have the corresponding political power and decision process. During 2015 we have seen in Addis Ababa, in New York and in Paris that people are very much aware of what should be done. And much is being done. But the time window we have both in the environmental and the social areas is short, and change is desperately slow. The October 2015 UNEP report states this in simple words: “To achieve the sustainable development we want will require a realignment of the financial system with the goals of sustainable development.”



ANEFAC, Report on interest rates, tables on pages 2, 3 and 5 ;

Banco Central (BCB) – History of interest rates – Selic – , 2014

Banco Central (BCB) – Política monetária e operações de crédito do SFN (23/09/2015) –

BIS Quarterly Review, June 2013, pg.3 –

DCI – A metade do consumo é financiada por cartões  (Half the consumption is financed by credit cards) – August 20, 2014, pg. B1

Dowbor, Ladislau – Os estranhos caminhos do nosso dinheiro (The Weird Ways of Our Money), Editora Fundação Perseu Abramo, São Paulo, 2014,

Dowbor, Ladislau –Intelligent alternatives for energy use in Brazil

Economist, December 7, 2013 – The rise of Black Rock,

Economist, February 16, 2013 – The missing $20 trillion, Special Report on Offshore Finance

Furtado, Celso – Para onde caminhamos (Which way are we going?) – paper published in JB November 14, 2004

GFI – Brazil: flight of capital – Global Financial Integrity, September, 2014 – ; see also Illicit Flows from Africa, January 2015,

Henry, James – The Price of off-shore revisited;  The Economist, Special report, The missing 20 trillion, 16/02/2013

ICIJ – International Consortium of Investigative Journalists, 2013-

ICIJ – Luxemburg Tax Files – November, 2014 – (for data in Portuguese about Itaú and Bradesco, see the article by Fernando Rodrigues, Folha de São Paulo November 5, 2014

INESC – As implicações do sistema tributário brasileiro na desigualdade de renda  (The implications of the Brazilian tax system on income inequality) – September, 2014,

IPEA – Transformações na indústria bancária brasileira e o cenário de crise ( Transformations in the Brazilian banking industry and the crisis scenario – Official Report by the Presidency, April, 2009, pg. 15

Khair, Amir – A borda da cachoeira – OESP, 01/02/2015 –,a-borda-da-cachoeira-imp-,1627819

La Rovere, Emilio – Alternative Energy in Brazil: a favourable heritage

OCDE – ICIJ – BEPS: Base Erosion and Profit Shifting

Oxfam – Having it all and wanting more – 2015 –

Polychroniu J.C. – Reconceiving change inthe age of parasitic capitalism –  2014, Truthout,

Schneyer, Joshua – Commodity Traders: the Trillion Dollars Club –   or

Stiglitz, Joseph –

Tax Justice Network – James Henry, The Price of off-shore revisited; Data on Brazil are in Appendix III, (1) pg. 23  See also in the site of TJN  the update of June 2014, as well as The cost of Tax Abuse: the Cost of Tax Evasion Worldwide,  2011,

UNEP – Aligning the financial system with sustainable development –  file:///C:/Users/Ladislau%20Dowbor/Downloads/Inquiry%20-%20Pathways%20to%20Scale%20FINAL%2020150119.pdf

Vitali, S., J.B Glattfelder and S. Battiston – ETH, The Network of Global Corporate Control.


Ladislau Dowbor,  professor at the Pontifícia Universidade Católica in São Paulo, author of more than 40 books on economic, social and environmental development. Consultant to several public institutions as well as UN agencies. Publications can be found at, under Creative Commons regime (free non-commercial use). Contact