Living with high interest in Brazil.

When a Brazilian family makes a major purchase, no thought is given to what the interest rate might be. The only concern is the monthly installment payment. Can it fit into the family's budget?

This is one of the major points made by a story from the Inter Press Service (IPS) (Rome) about interest rates in Brazil (March 20, 2007.) The story was distributed on the IPS wires with the headline, "Consumers Don't Question Irrational Interest Rates."

And, in fact, they do not.

According to the vice president of Brazil's National Association of Finance, Administration and Accounting Executives (ANEFAC), who was quoted in the IPS story, "It is difficult to explain to a foreigner how an economy functions, in which consumers pay 225 percent annual interest on their overdue credit card debt and companies pay 60 percent to obtain working capital through a loan."

Difficult? The target for the rate of inflation set by Brazil's central bank for 2007 through 2008 is 4.5 percent. Brazil's fiscal year is the calendar year.

The IPS story says, "Brazilians have always lived with this 'anomaly.'

Here are some examples of this "anomaly" in action. Consumers routinely pay 225 percent annual interest on their credit card balances. A mid-sized company pays 6o percent annual interest for working capital. Small companies pay 120 percent to 130 percent. Big companies have it easier. They pay they only pay 18 percent.

The IPS story offered an example of a "super deal" on an economy car. The "deal" with interest rates hidden in the 61 installment payments puts the final price of the car 72 percent above its "sticker" price. "Conventional" economic thinking says these "absurdly high" interest make so sense whatsoever.

But considering Brazil's enormous gap between rich and poor, there might, at least, be an explanation. The CIA's World Factbook publishes a 2002 estimate showing that the lowest 10 percent of the population account for 0.7 percent of the national income, while the top 10 percent accounts for 31.3 percent. Consumers in Brazil have never had real access to credit-nor can they think in conventional terms about interest rates.

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