THE PUBLIC DEBT OF RIO GRANDE DO SUL: AN ANALYSIS BASED ON THE MINSKY’S FINANCIAL FRAGILITY HYPOTHESIS

Abstract

In the light of the financial instability hypothesis (FIH) proposed by Minsky, this paper examines the cash flow of Rio Grande do Sul (RS)’s public debt, after 1998, when all public state debts were renegotiated with the federal government. The idea is to show that the performance of this cash flow was not able to stabilize or mitigate the RS’s public debt, but, on the contrary, it contributed to increase the RS’s public debt. Thus, adapting the FIH to the modus operandi of the public sector, it is elaborated, in an original way, the Financial Fragility of the Public Debt Index (FFPDI) to analyze the RS’s public debt during the period 1998-2014. The results of the FFPDI show that the RS’s public debt had: (i) a Ponzi structure from November 1998 to February 1999 and from April 2000 to August 2003, periods in which the debt indexer, IGP-DI, suffered severe elevations, especially due to the devaluation of the exchange rate; (ii) from March 1999 to March 2000 and from September 2003 to May 2013, the Index was characterized as speculative; and (iii) after June 2013 the FFPDI was considered hedge, i.e., the cash flow had certain margin of safety.