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Brazil: Anchoring Policy Credibility in the Midst of Financial Crisis

In: Successes of the International Monetary Fund

Author

Listed:
  • Lorenzo L. Pérez

    (Middle East and Central Asia Department)

  • Philip R. Gerson
  • Arminio Fraga

    (Central Bank of Brazil)

Abstract

Brazil’s negotiations with the IMF in 2002 concerning possible financial support for its economic program took place amid a growing lack of confidence by investors in the course of the country’s future economic policies and prospects, and thus in its ability—or even willingness—to service its debt. The victory of the opposition candidate in the presidential elections in October of that year was looking increasingly certain, and investors feared that macroeconomic policies would weaken and that Brazil could default on its financial obligations. As interest rates on Brazilian debt rose to high levels and pressure on the currency mounted, the authorities sought a credible commitment mechanism that would reassure investors that regardless of the election results, macroeconomic policies would continue to aim at financial stability. The authorities saw an economic program supported by the IMF as a key element of this mechanism, especially if the main opposition candidates were prepared to endorse it publicly.

Suggested Citation

  • Lorenzo L. Pérez & Philip R. Gerson & Arminio Fraga, 2009. "Brazil: Anchoring Policy Credibility in the Midst of Financial Crisis," Palgrave Macmillan Books, in: Eduard Brau & Ian McDonald (ed.), Successes of the International Monetary Fund, chapter 6, pages 106-124, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-23949-4_6
    DOI: 10.1057/9780230239494_6
    as

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