Is Brazil Next?
Until the IMF package on August 7, the financial markets showed great concern that Brazil might follow Russia, Ecuador, the Heavily Indebted Poor Countries, and Argentina in defaulting on its public debt. The yield spread of Brazilian debt over US Treasury securities ("Brazil risk") rose above 2,000 basis points in July 2002, on somedays higher than that of Nigerian debt, and second only to Argentina. One of my colleagues, Morris Goldstein, publicly estimated the probability of a Brazilian debt restructuring before the end of 2003 to be as high as 70 percent. After that (though not necessarily as a consequence!) the Brazilian real depreciated a lot more and Brazil risk rose much more. The questions addressed in this brief are whether this pessimism about the prospects of Brazil was justified, and whether the new IMF program announced on August 7, 2002, promises to bring these fears to an end once and for all.
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- Carlo Ambrogio Favero & Francesco Giavazzi, "undated". "Why are Brazil´s Interest Rates so High?," Working Papers 224, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.