Dilma Rousseff, Brazil’s first female president, is about to go on trial. She is temporarily suspended from office while Brazilian politicians debate whether she broke the country’s laws.
Her crime is she allegedly borrowed about US$11 billion from Brazil’s state banks—about one percent of GDP—to fund long-running social programs for small farmers and the poor while trying to get reelected, which concealed a budget deficit.
The impeachment hearings come amid a wide-ranging corruption scandal and an economy that is in tatters. Rousseff is calling it a coup and urging her supporters to march in the streets.
So why is it a crime for the Brazilian president to borrow money from one part of the government—state-owned banks—in order to allow the executive branch to spend more? The answer lies in Brazil’s history of debt and hyperinflation.
Brazil’s Debt Problem
Brazil’s constitution expressly forbids spending money that has not been allocated in the budget and also forbids the government from borrowing money without prior authorization.
Other countries have similar clauses. The U.S. Constitution, for example, gives only Congress, not the president, the power to borrow money, and the amount that can be borrowed is subject to a debt ceiling (which isn’t in the Constitution). But beyond that, the document sets no specific limits.
So why does a country like Brazil enshrine in its constitution such strict limits on borrowing and spending? The simple reason is that Brazil has had a very troubled financial history. Past governments have borrowed too much and then been unable to pay off the country’s debts.
