Debt Sustainability, Brazil, and the IMF
AbstractThose who have watched financial crises in emerging economies over the past two years would have noticed two things. First, there has been a high concentration of financial crises in Latin America. Second, debt problems have been at the heart of several recent crises, including the prominent ones in Argentina, Brazil, Turkey, and Uruguay. This paper discusses issues of debt sustainability in emerging economies. After providing in section II a brief account of the hard times that have recently fallen on Latin America, Goldstein presents in section III a few summary debt statistics for several recent crisis economies. Section IV draws attention to a group of pitfalls in the standard framework for assessing government debt sustainability in emerging economies. Section V examines the factors influencing near-term debt dynamics in Brazil. After outlining several positive features of the Brazilian economy that did not exist in Argentina on the eve of the latter's recent crisis, he lays out the arguments for expecting that economic growth in Brazil this year will be slow (only slightly above 1 percent), that the real interest rate on the public debt will be relatively high (about 10-1/2 percent), and that the government is unlikely to deliver a primary surplus in the budget much beyond 4 percent of GDP. Despite the good start made by the new Lula government, the author maintains that the debt situation remains precarious; he argues that the Brazilian authorities should aim for a primary surplus, particularly when the global economy is heading into a period with increased downside risk. He also explains why Brazil's central bank should be granted (de jure) operational independence as soon as possible and why maximum efforts should be made to negotiate trade arrangements that increase Brazil's low level of trade openness. If the recent market rally fizzles and interest rates, capital flows, and the exchange rate again take a significant adverse turn, serious consideration ought to be given to doing a major debt restructuring with the cooperation and support of the International Monetary Fund (IMF). Finally, in section VI, Goldstein draws some implications of these debt issues for the policies of the IMF and of its major shareholders (the G-7 countries). He concludes that IMF surveillance needs to pay much greater attention than it has in the past to the build-up of vulnerable domestic and external debt positions in emerging economies, that the Fund has to adopt a tougher position in making debt sustainability a key condition for IMF lending, and that there would be an important role for IMF financing in easing the adjustment costs of a necessary debt restructuring.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP03-1.
Date of creation: Feb 2003
Date of revision:
Brazil; Latin America; Argentina; Turkey; Debt; Financial Crises; Restructuring;
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eduardo Borensztein & Paolo Mauro, 2002. "Reviving the Case for GDP-Indexed Bonds," IMF Policy Discussion Papers 02/10, International Monetary Fund.
- John D. Burger & Francis E. Warnock, 2003. "Diversification, original sin, and international bond portfolios," International Finance Discussion Papers 755, Board of Governors of the Federal Reserve System (U.S.).
- Brad Setser & Nouriel Roubini & Christian Keller & Mark Allen & Christoph B. Rosenberg, 2002. "A Balance Sheet Approach to Financial Crisis," IMF Working Papers 02/210, International Monetary Fund.
- Carlo Ambrogio Favero & Francesco Giavazzi, . "Why are Brazil´s Interest Rates so High?," Working Papers 224, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Jorge Blázquez-Lidoy & Luciana Taft, 2003. "La sostenibilidad de la deuda externa en economías emergentes," Hacienda Pública Española, IEF, vol. 167(4), pages 157-183, December.
- Manuela Goretti, 2005.
"The Brazilian currency turmoil of 2002: a nonlinear analysis,"
International Journal of Finance & Economics,
John Wiley & Sons, Ltd., vol. 10(4), pages 289-306.
- Manuela Goretti, 2005. "The Brazilian Currency Turmoil of 2002: A Nonlinear Analysis," International Finance 0506001, EconWPA.
- Nur Keyder, 2003. "Debt Sustainability and the Exchange Rate: The Case of Turkey," ERC Working Papers 0306, ERC - Economic Research Center, Middle East Technical University, revised Jun 2003.
- Eichengreen, Barry & Kletzer, Kenneth & Mody, Ashoka, 2003.
"Crisis Resolution: Next Steps,"
Santa Cruz Department of Economics, Working Paper Series
qt4cj974r4, Department of Economics, UC Santa Cruz.
- Kenneth Kletzer & Barry J. Eichengreen & Ashoka Mody, 2003. "Crisis Resolution: Next Steps," IMF Working Papers 03/196, International Monetary Fund.
- Eichengreen, Barry & Kletzer, Kenneth & Mody, Ashoka, 2003. "Crisis Resolution: Next Steps," Santa Cruz Center for International Economics, Working Paper Series qt4cj974r4, Center for International Economics, UC Santa Cruz.
- Barry Eichengreen & Kenneth Kletzer, 2003. "Crisis Resolution: Next Steps," NBER Working Papers 10095, National Bureau of Economic Research, Inc.
- Barry Eichengreen & Kenneth Kletzer & Ashoka Mody, 2003. "Crisis resolution: next steps," Pacific Basin Working Paper Series 03-05, Federal Reserve Bank of San Francisco.
- Stix, Helmut, 2004. "The Impact of ATM Transactions and Cashless Payments on Cash Demand in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 90â105.
- Sebastian Edwards & Javier Gomez Biscarri & Fernando Perez de Gracia, 2003.
"Stock Market Cycles, Financial Liberalization and Volatility,"
NBER Working Papers
9817, National Bureau of Economic Research, Inc.
- Edwards, Sebastian & Biscarri, Javier Gomez & Perez de Gracia, Fernando, 2003. "Stock market cycles, financial liberalization and volatility," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 925-955, December.
- Sebastian Edwards & Javier Gómez Biscarri & Fernando Pérez de Gracia, 2003. "Stock Market Cycles, Financial Liberalization and Volatility," Faculty Working Papers 08/03, School of Economics and Business Administration, University of Navarra.
- Reinhart, Carmen, 2004. "Debt intolerance: Executive summary," MPRA Paper 13398, University Library of Munich, Germany.
- Bjoern Rother & Ivetta Hakobyan & Monica Baumgarten de Bolle, 2006. "The Level and Composition of Public Sector Debt in Emerging Market Crises," IMF Working Papers 06/186, International Monetary Fund.
- Hans Genberg & Astrit Sulstarova, 2004.
"Macroeconomic volatility, debt dynamics, and sovereign interest rate spreads,"
IHEID Working Papers
03-2004, Economics Section, The Graduate Institute of International Studies.
- Genberg, Hans & Sulstarova, Astrit, 2008. "Macroeconomic volatility, debt dynamics, and sovereign interest rate spreads," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 26-39, February.
- Hans Genberg & Astrit Sulstarova, 2005. "Macroeconomic Volatility, Debt Dynamics, and Sovereign Interest Rate Spreads," Working Papers 182005, Hong Kong Institute for Monetary Research.
- Hernán Rincón & Jorge Ramos & Ignacio Lozano, 2004.
"Crisis Fiscal Actual: Diagnóstico Y Recomendaciones,"
BORRADORES DE ECONOMIA
002244, BANCO DE LA REPÚBLICA.
- Hernán Rincón & Jorge Ramos & Ignacio Lozano, . "Crisis Fiscal Actual: Diagnóstico y Recomendaciones," Borradores de Economia 298, Banco de la Republica de Colombia.
- Fabrizio Onida, 2004. "Crescita e vincolo esterno: quali strategie per promuovere stabilità macroeconomica, competitività e investimenti," KITeS Working Papers 157, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Jul 2004.
- Patrick C. Higgins & Owen F. Humpage, 2004. "Walking on a fence: Brazil’s public-sector debt," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb.
- Marco Arnone & Luca Bandiera & Andrea Presbitero, 2005. "External Debt Sustainability: Theory and Empirical Evidence," International Finance 0512007, EconWPA.
- Thomas F. Cosimano & Michael T. Gapen, 2003. "Optimal Fiscal and Monetary Policy with Nominal and Indexed Debt," IMF Working Papers 03/225, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster).
If references are entirely missing, you can add them using this form.