Brazil household debt barely budges despite Lula debt-relief push

By Marcela Ayres

BRASILIA, July ‌30 (Reuters) - Brazilian household ​indebtedness ​eased only marginally in May, the first month of a broad government debt-renegotiation program launched by President Luiz Inacio Lula da ‌Silva as he prepares to seek re-election in October.

Central bank ⁠data released on Thursday showed total household debt -- measured as outstanding liabilities as a share ‌of income accumulated over the ‌previous 12 months -- edged down to 49.8% in May from 49.9% in April, which had marked the highest level since the series began in ​2011.

Lula launched in May a new phase of the so-called "Desenrola" debt-relief program, allowing borrowers in default earning up to five times the minimum ⁠wage to renegotiate debts.

Finance Minister Dario Durigan said earlier this week that the initiative, which uses government ​guarantees to secure lower borrowing costs, would be extended through the end of August.

Government figures show more than 3.6 million ​debt contracts have been renegotiated so far, ‌reducing the original value of obligations to 4 billion reais ($781.36 million) from 22 billion reais.

Lender BTG Pactual recently warned ⁠that elevated household debt could become a significant drag on Brazil's economy in coming years.

Economists led by former central bank director Tiago Berriel pointed to the historical ⁠connection between rising household leverage and subsequent slowdowns in consumption and economic activity, citing the ​debt build-up and recession between 2011 and 2016.

"Compared with that period, households now exhibit higher indebtedness and debt service burdens. The composition of unsecured credit has deteriorated, with ‌a larger share of higher-risk lending modalities," they wrote.

Separately, central bank data showed outstanding loans in Brazil rose 0.7% ‌in June from the previous month to 7.4 trillion reais. Annual credit growth ⁠accelerated to 9.7% from 9.6% in ‌May.

A broad measure of ​household and corporate defaults in non-earmarked lending was unchanged at a record 6.2%.

($1 = 5.1193 reais)

(Reporting by Marcela Ayres; Editing by ‌Gabriel Araujo)

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