This paper investigates the roles played by the global macroeconomic environment and by Brazilian policy in shaping the Brazilian debt crisis, and assesses the prospects for Brazil's sovereign debt after five years of the `muddling-through' strategy. We first examine Brazilian debt from a historical perspective and then consider the experiences of the 1970s. Between 1978 and 1982, Brazil's current account shifted by $13 billion towards deficits. This shift can be explained, for the most part, by the slowdown in exports, increased real interest rates and high real oil prices. Our estimates suggest that between 1978 and 1982, $35 billion (75% of Brazil's total net debt accumulation) can be accounted for by the adverse external environment. We then review the period 1982-7 and highlight four factors which contributed to the failure of the muddling-through strategy: higher than expected real interest rates, the failure of commodity prices to rise from their low 1982 levels, the unexpected difficulties due to the transfer problem, and the diminishing enthusiasm of creditors for the strategy. We conclude by discussing policies which, we argue, would better serve the long-term interests of Brazil and its creditors.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
243.