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Indebtedness of Brazilians is critical, says EAESP's professor

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Despite being lower than in other countries, the debt of Brazilians should be a matter of concern. That is what the professor of São Paulo School of Business Administration (FGV/EAESP) Fábio Gallo, believes when he talks about the survey by the Central Bank (BC) on the level of indebtedness of Brazilian families.Published last Friday, October 25th, the Central Bank's research revealed that the debt of Brazilians compromises 45.36% of income, while in countries such as the United States this commitment reaches 101.7%. According to the study, this is the highest level recorded by the index since the beginning of the historical series, in January 2005. In the United States or Europe, families spend more than they earn, but the installments they pay are relatively small and with longer terms. In Brazil, it is exactly the opposite. Indebtedness is low, at least compared to these countries, but installments make up an expressive portion of salaries, the professor explains in an article for Exame magazine. Gallo emphasized that high interest rates prevent indebtedness of Brazilians to reach the levels of developed countries, since the value of each installment here is much higher. The major difference of Brazil compared to developed countries on this matter is not only the level of indebtedness, but in debt service, which is much higher in Brazil than in other countries, he warned.Also according to Gallo, a significant part of this debt concerns consumption and not to long-term investments, such as mortgages. Many people bought cars in 2009 and could not pay for them. Hence, they resort to financing to pay consumption debts, he says, noting that high interest rates in the country create a vicious circle in which default is reflected in higher rates for credit payees. Unfortunately, the default is usually passed on to bank rates and a positive record can improve that, but the process is still at the beginning, he concluded.