Financial governance in Brazil 1998-2010: an overview

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the current financial system in Brazil has its key roots in the 1950s. at that time, several of the features were established, which are still in evidence today. of course, there have been changes, mainly in the 1990s and more recently, in the first decade of this century. However, it could be said that the most important features of the Brazilian financial system have not changed, especially in the field of long term financing. the Brazilian financial system is until today a typical, credit based one where the state has a peculiar and noteworthy role. state-owned banks share the financing of the economy with private banks but the former have a prominent role in long term financing and the latter in the short term. Moreover, most of the funding for longterm financing comes from two public funds (Fgts and Pis-PasEP) and other public, constitutional funds. in addition, the public system encompasses parts of private bank loans due to enforceability (exigibilidades), calculated on cash deposits. in this context capital markets used to have very little relevance in the financing of the economy. during the time of the industrialization process financing of investment and even working capital have mostly come from public funds and banks as well as external financing. the abnormal presence of the latter is a testimony of the incapacity of the domestic financial system to provide the financing necessary for the development process. there has been a consensus as to the reason that shaped these features of the Brazilian financial system in the past: a high and volatile inflation rate. this characteristic has made operations of term transformation very risky, leading to the exclusion of private banks from financial intermediation. all these kinds of operaBrazilian Journal of Political Economy, vol. 31, no 5 (125), pp. 863-866, Special edition 2011