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Recent research undertaken by the Exame magazine indicated that borrowing levels for consumer goods and services (largely by the middle classes and above) have reached levels never witnessed before – tripling over the last 5 years, despite the 8 rises in the SELIC base interest rate over the last 16 months.

Furthermore, 67 percent are not aware of what interest they are paying on their loans; 50 percent admit that they do not know how to save efficiently and 65 percent do not resist purchasing despite what remain very high rates of interest.  The most popular lines of credit currently are ´special´ (advanced payment) cheques (27 percent), credit cards (14 percent) and personal loans (11 percent).  Credit card interest rates are also 8 times higher than in Mexico and 12 times as high as in the UK and Australia.

The government is seemingly dismissing the possibility of a bubble pointing to the healthy state of the employment market, solid business performance and income growth with Dilma Rousseff recently whilst also stating – in light of the recent new wave of turbulence in several developing countries – that Brazil ´will exit out of this crisis better than when it entered´.  Mario Garnero, president of Brasilinvest at a recent conference in Washington illustrated that the average Brazilian family owes less than 50 percent of their annual income, compared to the average figure being almost 120 percent for the families in OECD countries.

Yet, the issue refuses to be ignored and has been brought to light several times both in Brazil and abroad, including by the Moisés Naím – senior associate in the international economics programme at the Carnegie Endowment for International Peace who stated in the Financial Times earlier this year that: ´exuberance and complacency are the two enemies threatening Brazil’s current success.´  Whilst ex-director of the Central Bank, Luiz Fernando Figueiredo pointed to the fact that most Brazilian debts are short term, the Brazilian Consumers Association in a response blog post stated that many consumers are now having several ongoing debts and such an idea is completely out of touch with what is happening in reality.  The banks themselves have become increasingly concerned with the risk of delinquency that could potentially emerge and it is now solely the major players – such as Itaú Unibanco, Bradesco and  Santander – that dominante the consumer credit sector.  Such institutions have also been seen implementing measures including payroll linked loan agreements (where payments owed come straight from the employer) which are reportedly working well.