IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Debt Sustainability, Brazil, and the IMF

  • Morris Goldstein


    (Institute for International Economics)

Those 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.

If 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.

File URL:
Download Restriction: no

Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP03-1.

in new window

Date of creation: Feb 2003
Date of revision:
Handle: RePEc:iie:wpaper:wp03-1
Contact details of provider: Postal: 1750 Massachusetts Avenue, NW, Washington, DC 20036-1903
Phone: 202-328-9000
Fax: 202-659-3225
Web page:

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. 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.).
  2. Eduardo Borensztein & Paolo Mauro, 2002. "Reviving the Case for GDP-Indexed Bonds," IMF Policy Discussion Papers 02/10, International Monetary Fund.
  3. Michael Mussa, 2002. "Argentina and the Fund: From Triumph to Tragedy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa67.
  4. 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.
  5. Morris Goldstein (ed.), 1999. "Safeguarding Prosperity in a Global Financial System: The Future International Financial Architecture," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 50.
  6. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iie:wpaper:wp03-1. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.