Prepared by Gerd Schwartz.
See Jack Glen and Brian Pinto (1994), “Debt or Equity? How Firms in Developing Countries Choose,” Discussion Paper No. 22, International Finance Corporation (Washington, DC).
On the basis of data provided by Economática; these data do not include privately held companies or enterprises that are fully state-owned.
Not all of this increase was the result of the government deficit; a significant part reflects debt that was issued in the context of restructuring/recapitalizing public banks.
While basic theory suggests that a more highly geared enterprise should (on average) have a higher return on equity (where the higher return compensates shareholders for the greater risk of insolvency or low earnings that results from the higher gearing) it could also have been expected that, starting from an initial position of low indebtedness, the improved macroeconomic environment during the initial years of the Real Plan would have helped Brazilian enterprises to improve their profits, particularly when compared to their more highly geared counterparts in other Latin American countries.
See “Rentabilidade Baixa, Mesmo Sem o Peso dos Juros” (Low profitability, even without the burden of interest) in Gazeta Mercantile April 23, 1999.
See Federal Republic of Brazil, Brazil’s Macroeconomic Stability Program, 1999–200 7; March 1999.
These data are thought to represent about 90 percent of the FX debt of the enterprise sector. The data comprise only securitized debt, and exclude some bridge loans and syndicated loans. Both bridge loans and syndicated loans were used heavily to raise large amounts of money during the privatization process; in general, they are difficult to track. Bank commercial papers (CPs), although securitized, are also excluded, since they are difficult to track as well. The CSFB/Garantia data focus on the euro market (euro bonds and notes); they also exclude trade finance and intercompany loans.
Also see “Artificio Contábil Esconde Perdas Com Câmbio” (Artificial Accounting Hides Exchange Rate Losses) in Gazeta Mercantíl May 11, 1999.
Also see “Brazil—Overcoming the Devaluation Impact on Brazilian Companies’ Financial Statements,” by CSFB/Garantía, April 15, 1999. Also, many corporate debt issues have embedded put options that, if exercised, could substantially reduce maturities.
Also see “Private Sector Implications of the Real Devaluation,” by CSFB/Garantía, January 22, 1999.
See “Eletrobrás triplica lucro no primeiro trimestre” (Eletrobrás triples profits in first quarter), in Gazeta Mercantile May 21, 1999.
See “Light prorroga perda de R$l bilhão” (Light prolongs loss of R$l billion), in Gazeta Mercantile May 19, 1999.
Sondagem Industrial-Sondagem Trimestral da Confederação National da Indústria, (Industry Survey-Quarterly CNI Survey); January/March 1999.
The detailed results of this survey are shown in Tables 3.2 to 3.5. They are interesting in that they attest to a significant degree of confidence of Brazilian enterprises in an economic environment that, at the time, was characterized by a significantly higher degree of uncertainty than now. They are also in contrast to similar surveys that were carried out in other countries following a significant exchange rate adjustment.