On June 6, 2023, the Official Gazette of the Union published the Provisional Measure that institutionalized Desenrola Brasil – the Emergency Program for Renegotiating Debts of Defaulting Individuals, Desenrola 1. Three years later, Desenrola 2 is in the works – and should be launched on Monday, May 4th. The original program was successful, celebrated the Ministry of Finance in May 2024, with a balance of R$ 53 billion in refinancings benefiting 15 million people.
Desenrola 2 could help twice as many Brazilians, but will it be enough to resolve the situation if the program pushes debtors into taking out more loans, even at an interest rate of 1.99% per month? A point of concern is that in Desenrola 1, each R$1 renegotiated resulted in R$1.15 in new defaults , according to the Central Bank.
What will be the outcome of the second initiative? It's difficult to predict, but it should be generally positive. This includes the use of R$ 4.5 billion from the FGTS ( Severance Indemnity Fund), an amount announced on Wednesday, April 29th, by the Minister of Labor and Employment, Luiz Marinho, in addition to the support from the Guarantee Fund for Operations (FGO), which could be boosted with funds forgotten by account holders in banks.
These instruments that "guarantee" the operation shield institutions against losses, but perhaps only temporarily because conventional credit does not show a significant contraction. In March of this year, according to the Central Bank, the total balance of operations advanced 0.9% compared to February and 9.7% at the end of 12 months, to R$ 7.2 trillion. Variations close to those observed a year earlier, respectively, expansions of 0.6% and 9.9%. The Central Bank and research institutes reveal, however, that default rates are explosive.
Although the stock of credit eligible for negotiation is estimated at R$ 100 billion, with debt discounts between 70%, 80% or even 90%, between R$ 20 billion and R$ 30 billion could be renegotiated, estimated Finance Minister Dario Durigan . Experts believe it could be even more because the FGTS guarantee, even if modest, is a powerful persuasive tool, especially for institutions dealing with a significant number of debtors who prefer to remain off their balance sheets.
According to the Default and Debt Renegotiation Map – derived from the “Serasa Limpa Nome” program – in March of this year, Brazil had 82.8 million people with negative credit records, totaling R$ 557 billion in debt, with an average value of R$ 1,647.64. The average value of the agreements reached was R$ 756, with discounts totaling R$ 18.4 billion.
Also in March, according to Serasa Experian, 50.51% of the Brazilian population was in default. By state, the three most indebted states are Amapá, with 65.1% of the population, the Federal District, with 62.77%, and Amazonas, with 60.10%. The three least indebted are: Santa Catarina, with 40.46%, Piauí, with 41.20%, and Espírito Santo, with 42.93%.
By segment, the institution adds, the most significant debt is credit card debt, at 27.3% of the total; basic bills such as water, electricity and gas, 21%; debts with finance companies, 20.2%; and debts for services in general, 11.5%, among other less significant debts.
Will we have Desenrola 3 or more?
“The Desenrola 2 program is positive and will have results, but they will be temporary because indebtedness in Brazil is structural. We will still have Desenrola 3, 4 or more,” assesses Alex Agostini, chief economist at Austin Rating, a Brazilian credit rating agency. Speaking to NeoFeed , the expert recalls that the 2023 experience, Desenrola 1, was also relevant.
“Credit channels were restored at that time, post-pandemic, when indebtedness reflected job and income losses. Considering that 60% of GDP comes from household consumption, the government needed to address indebtedness to prevent the economy from losing further momentum,” he recalls.
But Brazil has a structural problem in the poor distribution and concentration of income, even though the government resorts to social programs as compensation. "In some countries, such as the Nordic countries, this welfare system exists. But these nations have fiscal balance and a tax structure established for years that compensates for income differences that are minimal," says Agostini.
He warns that, in Brazil, the disparities are very large and the population has needs beyond the basics. And the other needs end up being met by credit. "In practice, Brazilians seek a better quality of life. And indebtedness is not a lack of financial education, but a lack of available resources," observes the economist.
“And that’s one point that justifies the new edition of the program. Another point is that the government realized that the debt is affecting its image and decided to take some action. It’s also important to remember that in Desenrola 1, the Selic rate was lower. Today it’s just below 15%. Still the highest in two decades, but without curbing the demand for credit because the need to improve social conditions is latent. Structural.”
Also structural, the economist cites, is banking concentration. “Today we have about 140 banks, but 85% of credit is in the hands of the five largest institutions. Therefore, there is restricted competition among a few players. Another structural issue is the fact that the National Treasury acts as an actor similar to the citizen. As a borrower of resources, the Treasury aims for decisions that promote social balance. But, compared to the citizen, the Treasury is a powerful competitor because it does not present risk.”
Another structural difficulty, adds Agostini, is public spending, which keeps interest rates under pressure.
"And interest rates will only fall with a change in fiscal policy that should be austere and long-term. This option would help monetary policy to naturally reduce interest rates, benefiting not only families but also the financial health of companies, with significant results. Companies could produce more at a lower cost, employing more people and with greater productivity, thus increasing disposable income."
