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Debt Management in Brazil: Evaluation of the Real Plan and Challenges Ahead

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  • Bevilaqua, Afonso S
  • Garcia, Marcio G P

Abstract

The Brazilian domestic debt has posed two challenges to policy-makers: it has grown very fast and its maturity is extremely short. This has prompted fears that a default or a compulsory lengthening scheme would be imposed. Here, we analyse the domestic public debt management experience in Brazil, searching for policy prescriptions for the next few years. After briefly reviewing the recent domestic public debt history, we decompose the large rise in federal bonded debt during 1995-2000, searching for its macroeconomic causes. The main culprits are the extremely high interest payments--which, until 1998, were caused by the weak fiscal stance and the quasi-fixed exchange-rate regime; and since 1999, by the impact of the currency depreciation on the dollar-indexed and the external debt--and the accumulation of assets of doubtful value, much of which may have to be written off in the future. Simulation exercises of the net debt path for the near future underscore the importance of a tighter fiscal stance to prevent the debt-GDP ratio from growing further. Given the need to quickly lengthen the debt maturity, our main policy advice is to foster, and rely more on, inflation-linked bonds. Copyright @ 2002 by John Wiley & Sons, Ltd. All rights reserved.

Suggested Citation

  • Bevilaqua, Afonso S & Garcia, Marcio G P, 2002. "Debt Management in Brazil: Evaluation of the Real Plan and Challenges Ahead," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(1), pages 15-35, January.
    • Handle: RePEc:ijf:ijfiec:v:7:y:2002:i:1:p:15-35
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    References listed on IDEAS

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    1. Mr. Robert T Price, 1997. "The Rationale and Design of Inflation-Indexed Bonds," IMF Working Papers 1997/012, International Monetary Fund.
    2. Afonso S. Bevilaqua & Rogério L. F. Werneck, 1998. "The quality of the federal net debt in Brazil," Textos para discussão 385, Department of Economics PUC-Rio (Brazil).
    3. Pastore, Affonso Celso, 1996. "Por que a política monetária perde eficácia?," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 50(3), July.
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    Cited by:

    1. Manoel Carlos de Castro Pires, 2006. "Uma Análise de Credibilidade na Política Fiscal Brasileira," Discussion Papers 1222, Instituto de Pesquisa Econômica Aplicada - IPEA.
    2. Alessandro Missale & Francesco Giavazzi, 2003. "Public Debt Management in Brazil," Development Working Papers 178, Centro Studi Luca d'Agliano, University of Milano.
    3. Marcio Garcia & Roberto Rigobon, 2004. "A Risk Management Approach to Emerging Market's Sovereign Debt Sustainability with an Application to Brazilian Data," NBER Working Papers 10336, National Bureau of Economic Research, Inc.
    4. Cristina Arellano & Ananth Ramanarayanan, 2012. "Default and the Maturity Structure in Sovereign Bonds," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 187-232.
    5. Roberto Rigobon & Marcio Garcia, 2004. "A Risk Management Approach to Emerging Market’s Sovereign Debt Sustainability with an application to Brazilian data," Econometric Society 2004 Latin American Meetings 24, Econometric Society.
    6. Ms. Anastasia Guscina, 2008. "Impact of Macroeconomic, Political, and Institutional Factors on the Structure of Government Debt in Emerging Market Countries," IMF Working Papers 2008/205, International Monetary Fund.
    7. repec:idb:brikps:266 is not listed on IDEAS
    8. World Bank, 2002. "Brazil : The New Growth Agenda, Volume 1. Policy Briefing," World Bank Publications - Reports 15289, The World Bank Group.
    9. Yu Hsing, 2003. "Impact of external debt and other macroeconomic policies on output in Brazil: a var approach," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 18(2), pages 97-108, December.
    10. AGENOR Pierre-Richard & FERNANDES Reynaldo & HADDAD Eduardo & VAN DER MENSBRUGGHE Dominique, 2010. "Analyzing the Impact of Adjustment Policies on the Poor: An IMMPA Framework for Brazil," EcoMod2003 330700002, EcoMod.

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    More about this item

    JEL classification:

    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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