LUẬN văn THẠC sĩ (KINH tế) how the political instability has affected the brazilian banking system in terms of student loans

LiteratureReview...12 2.1 LiteratureIntroduction...12 2.2 Bankingsystemxeconomicsandpolitics...12 2.3 Bankingloansxpolitics...13 2.4 Brazilianbankingsystem...14 2.5 Studentloans...15 2.6

nkingsystemintermsofstudentloans?

Dissertationsubmittedinpartfulfilmentoftherequirementsf o r t

hedegreeof MBAinFinance atDublinBusinessSchool

RodrigoDultra

StudentNumber:10352929S

u p e r v i s o r : EndaMurphy

Declaration

I,RodrigoDultra,declarethatthisresearchismyoriginalworkandthatithasneverbeenpresentedt o anyinstitutionoruniversity fortheaward ofDegreeorDiploma.Inaddition,I havereferencedcorrectlya ll li t e r a t

u r e a n d sourcesu s e d i n thisw o r k a n d thisthisw o r k i s f u l l y compliantw i t h theD u b l i n BusinessSchool’sacademichonestypolicy

Signed:

Date:10/05/2018

IwouldliketoexpressmygratitudetoallthepeoplewhomadethisdissertationpossibleandwhohavecontributedtomyentireacademicdevelopmentduringmyMastersinBusinessAdministrationw i t h emphasisinFinanceatDublinBusinessSchoolinthislastacademicyear

Firstly,I w o u l d l i k e a l s o t h a n k m y e n t i r e f a m i l y w h o h a s b e e n e n c o u r a g i n g a n d g i v i n g me a l l thesupportallthetime,allowingmetofinishnotjustmyfirstdegreebutalsothispostgraduateone.T h e yhavealwaysbeenproudofmyachievementsundereverycircumstances

Secondly,Iwouldliketothankmyclassmatesthathaveworkedandstudiedwithmeduringallthemodulesaswellasallthelecturesthatassistedmepatientlythroughoutthecourse

Thirdly,thanktomysupervisorEndaMurphywhohascontributedwithhissupport,motivationandadvicesthroughoutmydissertationsupervision

Finally,thanktoallmyfriendsinBrazilandIrelandforthesupportandmomentstogether

Brazili s currentlyp as s i n g througha uniquemomenti n i t s history.A m a s s corruptions ch e m e h a s b e e nunderinvestigationoverthelastthreeyearsandithasmademanypoliticiansbeconvictedandg o tojail.Accordingly,theformerpresidentDilmaRoussefsufferedanimpeachmentand,differentlyfromtheonethatFernandoCollorsufferedin1994,thistimethereisapoliticalinstabilityaffectingnotjustthecurrenteconomicconditionswithentireindustriessufferingmanyjobslossbutalsothenextpoliticalelectionswiththefavouritecandidateandformerpresidentofBrazil,LuizInacioLuladaSilva,arrested.Accordingly,thee con omic situationismu ch worsean d somein du s tri e s have bee n stronglyaffected.However,whathasnotbeenaddressedyetistowhatextentthispoliticalinstabilityh a s affectedthestudentloans,animportantaspectfortocontinuousdevelopmentofthecountry

Asaresult,thisresearchaimstoassesshowthestudentloanshavebeenaffectedbythepoliticalinstabilityinthecountry.Accordingly,primarydataandseconddatawerecollectedinordertoruntheanalysisonthetheme.Thefirstonewascollectedfrominterviewsandquestionnaireswhilethesecondonefromarticles,booksandacademicarticlestoconstitutetheliteraturereview.Moreover,g a p s wereidentifiedintheexistingknowledgeaboutthethemeandwerediscussedandanalysed

Ina d d i t i o n , i t h a s b e e n t a k e n a n interpretivism+ positivism,i n d u c t i v e , s u r v e y , methods,cross-

mixed-sectional,qualitative+quantitativeresearchdesign,whichisexplainedintheresearchmerhodologychapter.Furthermore,thisresearchcontributesintherelationbetweenpoliticalinstabilityandstudentloansbyassessingtheBraziliansituationatthemoment

1.Introduction……… 07

2 LiteratureReview 12

2.1 LiteratureIntroduction 12

2.2 Bankingsystemxeconomicsandpolitics 12

2.3 Bankingloansxpolitics 13

2.4 Brazilianbankingsystem 14

2.5 Studentloans 15

2.6 Evolutionofhighereducationfunding 17

2.5Braziliangovernmentpolicyforstudents-FIES 18

2.8 StudentloanpolicyintheUS 20

2.9 LiteratureConclusion 21

3 Methodology 23

3.1 MethodologyIntroduction 23

3.2 ResearchDesign 24

3.2.1 ResearchPhilosophy 24

3.2.2 ResearchApproach 25

3.2.3 ResearchStrategy 26

3.3 ResearchChoices 28

3.4 Timehorizon 29

3.5 Techniquesandprocedures 29

3.5.1 DataCollection 29

3.5.2 DataAnalysis 30

3.3Sampling-SelectingRespondents 30

3.6 ResearchEthics 31

3.7 LimitationsofMethodology 32

4 DataFindings 33

4.1 DatafromInterviews 33

4.2 DatafromQuestionnaires 36

5 Discussion 39

6 Conclusions 43

7 Selfreflection 45

7.1 Introduction 47

7.2 Kolbstyle 47

7.3 HoneyandMumford 50

References 52

Appendices 58

Figure1–BrazilGDPfrom2002to2016.Source:Nozaki,2018……….……… ……07Figure2–GrowthratesintheConstructionIndustry.Source:IBGE,2017……… 08Figure3–

IncreaseofuniversitiespricetuitionincomparisontofederalloansintheUSfrom2001to2012.Source:Lucca,NadauldandChen2016……… … 21Figure9–

ResearchOnion.Source:Saunders,2007………2 3

Figure10–ActionResearchprocess.Source:Saunders,2007……… ….27Figure11–Researchchoices.Source:Saunders,2007……….…28Figure12–

Researchstructureofthisproject.Source:own,2018……… 32Figure1StudentloanspertypeinBrazil.Source:own,2018……….……

36Figure2Studentswhomanagedtorenewtheirvisas.Source:own,2018……….36Figure3Percentageofinterestratechange.Source:own,2018……….…

37Figure4Opinionofstudentsonthepoliticalmoment.Source:own,2018……….……

37Figure5Connectionbetweenpoliticsandloanchangesaccordingtostudents.Source:own,2018.38Figure6Kolblearningstyle.Source:Kolb,1984………

… 46Figure7HoneyandMumfordlearningstyle.Source:HoneyandMumford,1986……… …49

1 Introduction

Duringthelastfewyears,BrazilhasbeenpassingthroughseveralpoliticalscandalssuchastheLavaJ a t o investigationswithmostofthepoliticianssuchasthepresident,senatorsandgovernorsunderinvestigationaswellasconstructioncompaniesproventobeinvolvedsuchasOdebrecth,OAS,andQueirozGalvao(Pamplona,2017)

Inthebeginningof2015,theformerpresidentDilmaRouseffsufferedanimpeachmentandMichelTemertookoverherposition.However,heisalsobeinginvestigatedaswellasmostofthepossiblec a n d i d a t e s fo

rt h e nextp r e s i d e n t i a l electionsonS e p t e m b e r 2018,w h i c h i n c r e a s e s thepoliticalinstabilitye n v i r o n m e n t inthecompany.Fori n s t a n c e , G e r a l d o A l c k m i n a n d J a i r B o l s o n a r o a r e thesomeofthem a i n can di date s accordingt o me di a forecastsbutbothc an be a r r e s t e d evenmonthsbeforetheelections(GLOBO,2017).Moreover,LuizInaciodaSilva,Lula,thefavouritecandidatewasa r r e s t e d inApril2018afterbeingconvictedforcorruption(OGLOBO,2018)

Inaddition,duetothecorruptioninvestigation, someindustriessuchasgasand petrol,retailandm e a

t haveb e e n p r o g r e s s i v e l y a f f e c t e d Fori n s t a n c e , thee c o n o m y s i t u a t i o n w a s worsenedw i t h scandalinhugecompaniessuchasthepublicorganisationPetrobras,whichholdsthemonopolismofpetrolaswellastheprivatemeatproviderFriboi,whichwasprovedtofakethequalityresultsofthem e a t standards(GLOBO,2017).Asaresult,theBrazilianeconomyhasbeenstronglyaffectedbythepoliticalcrisiswith decrease oni ts GDPan dcon s u me ri s mas we l l as thegrowthofunemployment r a t e s ThegraphicsbelowillustratehowtheLavaJatooperation,whichstartedin2014hasimpactedtheeconomyinBrazil,specificallytheGDP(Nozaki,2018)

Figure8–BrazilGDPfrom2002to2016.Source:Nozaki,2018.

Forinstance,thegasandoilsectorwasresponsibleforroughly13%oftheGDPinBrazilanditwasexpecteda n investmentp a c k a g e ofU $ 2 2 0 b i l l i o n f o r theperiodb e t w e e n 2 0 1 4 a n d 2 0 1 8 justinPetrobras.However,duetotheLavaJatooperation,thesectorwasresponsibleforhalfoftheGDPdecreasesince2014andmorethan20,000supplierswereaffected.Anotherexampleofanindustry

impactedb y thei n s t a b i l i t y i s thecivilc o n s t r u c t i o n w h i c h , a c c o r d i n g t o theg r a p h i c

b e l o w , h a s decreasedupto15%incomparisontopastrates.Approximately100,000employeeshavelosttheirjobs,whichcontributedtoanincreaseinthesectorunemploymentrateof72%intheperiod(Nozaki,2018)

Figure9-GrowthratesinConstructionindustry.Source:IBGE,2017

Moreover,anotherimportantsectorfortheBrazilianeconomicdevelopmentistheStudentsector.Ing e n e r a

l , therea r e moret h a n 7 0 millions t u d e n t s inB r a z i l currently,w h i c h a p p r o x i m a t e l y 1 0 % i s representedb y t e r t i a r y education.I t i s dividedi n p u b l i c a n d p r i v a t e i n s t i t u t i o n s w i t h a hugepricedifferencebetweenbothwhichmakesitnecessaryformanypeopletorequeststudentloansinordert o m a k e i t possibl

et o f i n i s h theird e g r e e s ( I n v e s t i n b r a z i l , 2 0 1 7 ) H o w e v e r , w h a t i t h a s notb e e n addressedyetistheeffectsofthepoliticalinstabilityontheprovisionoftheseloans

Furthermore,thea d d r e s s oft h e i s s u e i s notjusti m p o r t a n t f o r thes t u d e n t s buta l s o t o assesswhethersucha n i m p o r t a n t aspectofthee c o n o m y h a s fluctuatedd u r i n g thecrisis.A c c o r d i n g t o ZanujaBranco(2012),Brazil,IndiaandChinawerepartofthefiveeconomiesthatgrewthemostinthelastdecadeandtheywerealsosomeofthenationsthatinvestedthemostintertiaryeducation.Thisisaveryrelevantaspectfortheeconomybecauseitcanimprovehistoricalissuesthatdisturbthiscountrydevelopmentsuchasunskilledlabourandlowproductionrates(Branco,2012)

Inaddition,astudentloancanbeobtainedinprivateandpublicbanks.Itpresentssimplerepaymentmethods,lowinterestratesanditcoversallthelivingneedsforthestudentsuchasrentandfood.ThemostpopularandrelevantstudentloansysteminBrazilisrunbytheFundofStudentFinancing(FIES),a governmentb o d y c r e a t e d i n1976t o s e l e c t studentsi n ordert o p r o v i d e themloansforp r i v a t e institutionsandwhichhasabudgetofR$13billionperyearand26%ofthetotal currentstudentsinuniversity,whichshowstherelevancyandmagnitudeofthebody.Itspopularityisdueto

amuchlowerrate,3.4%peryear,incomparisontoprivateinstitutionsthatpresentarateofroughly7%andthatitisthereasonforthevastmajorityofstudentloansbeenobtainedinthepublicsector( M E C , 2017)

Figure10:FIES.Source:FIES(2018).

Moreover,accordingtotheOECD(2011),peoplewhohavetertiaryeducationinBrazilearns2.5timemorethanpeoplewhodonot,whichrepresentsthebiggestdifferenceinalistof30countriesofthes u r v e y conductedbytheorganization.Accordingly,italsoillustratesthesocialinequalitypresentedinthecountryandhowimportantisforstudentstohaveadegreeinBrazil(OECD,2011)

Researchquestion:

Thereisexistingliteratureonimportantandrelatedtopicssuchastherelationbetweenthebankingindustryandthepolitics/

economyofacountryliketheonewrittenbyPhilippHartmann,theBrazilianbankingsystemwithGeraldoMaiabeingoneofthemostpopularauthorsonthetopic;andbankingloanswrittenbyPauloSapienza.However,asexplainedwithmoredetailsinthenextsection,noneoftheseresearcheshavebeenaddressedtowhatextenttheBrazilianbankingsystemhasbeenaffectedduet o thepoliticalinstabilityin t e r m s ofit s studentloans.Theya dd re s s theirsubjectsi n a moreg e n e r a l perspectiveanddonotrelateittotheBraziliansituation.Furthermore,thestudiesthatareabouttheB r a z i l i a n b a n k i n g systema r e moredescriptiver a t h e r t h a n a n a l y t i c a

l a n d theyd o n o t includethecurrentpoliticalcrisisnorthestudentloansasexplainedinanothersectionfurther

Thereasonforth at i s forbeinga muchu p d a t e d topi c sincethepoliticalin s tabi l i ty on l y starte d i n Februaryof2015,itisthefirsttimethatsuchuncertaintyhashitthecountryandfornothavingthestudentsangleinanyresearchdonesofar.Inthisway,thispaperwouldcontributetotheliteratureontherelationshipbetweenbankingandpoliticswiththeexampleofthecurrentBraziliansituation

structuredinterviewswiththefirstonesandquestionnairesw i t h thesecondfromdifferentbackgroundsasexplainedinanothersectionfurther.

Questionforstudents:

HasyourstudentloansufferedanychangesincethepoliticalinstabilitystartedinFebruary2015?

Thehypothesisisthatstudentloanssufferedtheeffectsofthepoliticalinstability.Inaddition, thev a

r i a b l e thatisintendedtomeasurewiththisquestionisthestudentloaninordertocomparethet w o possibleanswersforit:yesorno.Inthisway,itwouldbeabletogetasenseifstudentsaresufferingfromthepoliticalinstabilityornot

Asa result,thisresearchw i l l b e extremelyimportantfort h e p u b l i c i n v o l v e d t o b e a w a r e ofthecurrentsituationsuchasstudentswhodependonloanstofinishtheirdegreesatuniversityaswellasforbankerstoassessitsstabilityontheloansdepartmentundersuchnegativemacroconditions.Thea i m istoprovideacomprehensivereviewofwhathashappenedsofarwithstudentloansduringthecrisis,toassesstowhatextenttheyaresusceptibletopoliticaluncertaintyinBrazilandtoprovideausefuldataforbankstotakeintoaccountfortheirstrategyinthefuture.Inaddition,itcanbeusefulforanybankandgovernmentinacountrythatmaypresentasimilarsituationinthefutureintermsofstabilityinpolitics

Inc h a p t e r 1 i s p r e s e n t e d thei n t r o d u c t i o n a s w e l l a s theb a c k g r o u n d , thea i m s , thes u b r e s e a r

2 LiteratureReview

AccordingtoSaunders(2007,p.32),Literaturereviewisadetailedoverviewoftherelevantliteraturer e g a r d i

n g thetopicofadissertation.Accordingly,themainrelatedthemestothetopicarediscusseda n d criticallyevaluatedbelow

2.1 LiteratureIntroduction

Theaimofthischapteristoanalyseacademicexistingthemeswhicharerelevantandrelatedtothetopicofthisproposalandtoassesswhatisalreadyknownaboutthesubjectofthisdissertation.Inaddition,abettercomprehensionofwhatisalreadywrittenbyresearcherswillbeusedtosupporttheexecutionoftheresearchedproposed.Firstly,itisgoingtobeaddressedbankingsystemxeconomica n d politicstoassesstherelevantmaterialabouttherelationbetweenthesustainabilityofabankingsystemandthepoliticalandeconomicsituationofacountry,towhatextenttheyarelinked.Inthisw a y , itcanprovideasomeinsightsofprevioussimilarexamplestoassessifthepoliticalinstabilityinB r a z i l hasaffecteditsstudentloans.Secondly,bankingloansxpolitics,tounderstandtheeffectsofpoliticsonloansand,therefore,provideanotherbenchmarkforthedissertation.Thirdly,theBrazilianbankingsysteml i t e r a t u r e w i l l b e r e v i e w e d ino r d e r t o o b t a i n a g r e a t e r understandingofhowi t s structureisandhowitworks

Fourthly,theliteratureaboutstudentloanswillbeassessedsincethethemeofthisprojectisaboutthecurrentsituationoftheonesinBrazilanditwillprovideageneralknowledge.Insequence,theevolutionofhighereducationfundinginordertounderstandthechangesthathavebeenhappeningi n thel a s t d e c a d e s i

nt h e w o r l d i n ordert o p r o v i d e a contextonthee v o l u t i o n ofthetheme.Furthermore,theliteratureontheBraziliangovernmentpolicyforstudent,theFIES,willbeanalysedi n ordertopresentabettercomprehensionofthesubjectsinceitisthestudentloantypethattheB r a z i l i a n governmentsprovidesforitsstudentssothatitisextremelyimportanttounderstanditforthisproject.Atlast,thestudentloanpolicyintheUnitedStatesinordertoprovideanothercountryl o a n systemt o comparew i t h theB r a z i l i a n one.I t w a

s chosenm a i n l y a c a d e m i c j o u r n a l s t h a t a r e u p d a t e aspossibleduetotheirqualityandrelevancytothetheme

Asaresult,theanaly sis ofthesixthemesabovecombined wi th theprimary researchwillseektoa n s

w e r theresearchquestionofthisdissertation

2.2 Bankingsystemxeconomicsandpolitics

AccordingtoHartmann,StraetmansandVries(2005),thebankingsectorisanimportantaspectforthestabilityofanyeconomyofacountry.Moreover,bankcreditisproventobeanessentialfactorforthefinancingofinvestmentandeconomygrowthindifferenttypesofeconomy.Inaddition,the

assessmentofabankingsystemstabilitycanbeanessentialinterestofstudyforcentralbanksandsupervisoryauthoritiesinordertopreservefinancial andmonetarystability(Hartmann,Straetmansa n d Vries,2005).Forinstance,transparencyandbanksystemriskissuesdemonstratedpositiveandnegativeresultsontheeconomyintheUSandEuropeancountriesoverthelastdecade.Furthermore,P r a d h a n , A r v i n a

n d N a i r (2017)d e m o n s t r a t e d throughtheG r a n g e r causalitytest,a statisticalhypothesestest,whichshowedthatinthelong-termthebankingsectorhasbeenstronglylinkedtotheeconomicgrowthintheG-20countries.However,itisimportanttohighlightthattheresultsd i f fe r e d fromc o u n t r y t o c o u n t r y d e

p e n d i n g oni t s d e v e l o p m e n t s t a g e ( P r a d h a n , A r v i n a n d N a i r , 2017)

Furthermore,StijnClaessens,SwatiGhosh,andRoxanaMihet(2013),analysedhowmacro-prudentialpoliciesc a n l i m i t b a n k vulnerabilities.Accordingt o them,policiesneedt o b e properlychosen,c a l i b r a t e d andadjustedbycountrycircumstancesandtheonesaimedatborrowersaremoderatelyeffectivein reducingban king risksan d, con se qu e n tly, crisis.Forinstance,Kenourgios an dSami tas (2007)associatedtheeconomicgrowthofPolandlastdecadetoitsfinancesectorbyconcludingthatcredittotheprivatesectorwasofthemainaspectsofthelong-termgrowth

AnotherevidenceofthestronglinkbetweenpoliticsandbankswasshownrecentlybyHoustonetal

(2014),demonstratingthatthecostofbankloansismuchlowerforcompaniesthathavemembersofi t s b o a r d sofdirectorsl i n k e d somehoww i t h p o l i t i c i a n s I t w a s possiblet o concludei t a f t e r theanalysisofahand-

collecteddatasetofthepoliticalconnectionof50banksintheUSfrom2003to2008(Houstonetal,2014).Asaresult,itshowsthatisnotjustthebanksectorthatinfluencestheeconomyandpoliticsbutalsotheotherwayround

Ontheotherhand,bothstudiesfocusmoreonavoidingpoliticandeconomicproblemsratherthanhandlingexistingones.Inaddition,thereisnomentionontheexistingliteratureofstudentloansbutjustgeneralcreditrates.Forbothreasons,thesestudiesarenotthesameasthisresearchproposesincludingtheBraziliancurrentsituationandthestudentloans.However,itprovidesrelevantinsightofhowprudentialpoliciestailoredforacountrycanbebeneficialforitssituation,whichcanbeusefulforthisprojectsinceitprimarilyshowsacertainrelationbetweenpoliticsandbankingsystemand,therefore,wouldhelptoanswertheresearchquestion

2.3 Bankingloansxpolitics

PaolaSapienza(2004)d e m o n s t r a t e d

howthebehaviourofstate-ownedb a n k s , w h e n i t comest o lending,isaffectedbytheelectionresultsofthepartyaffiliatedwithacertainbank.Forinstance,theinterestincreaseordecreasedependingonhowstrongisapoliticalpartyintheareawhereabankisborrowing.Furthermore,thereisalsoastrongrelationbetweentheinterestratesofstate-

ownedandp r i v a t e banksoncorporateloansforsimilarfirms,showingthatthegovernmentcaninterferedirectly