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Is Brazil Next?

Author

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  • John Williamson

    (Peterson Institute for International Economics)

Abstract

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.

Suggested Citation

  • John Williamson, 2002. "Is Brazil Next?," Policy Briefs PB02-07, Peterson Institute for International Economics.
    • Handle: RePEc:iie:pbrief:pb02-07
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    File URL: https://www.piie.com/publications/policy-briefs/brazil-next
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    References listed on IDEAS

    as
    1. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    2. 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.
    3. Maurice Obstfeld, 1985. "Floating Exchange Rates: Experience and Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 369-464.
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    Cited by:

    1. Miller, Marcus & Thampanishvong, Kannika, 2003. "Learning to Forget? Contagion and Political Risk in Brazil," CEPR Discussion Papers 3785, C.E.P.R. Discussion Papers.
    2. William R. Cline, 2003. "Restoring economic growth in Argentina," Policy Research Working Paper Series 3158, The World Bank.
    3. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    4. Morris Goldstein, 2003. "Debt Sustainability, Brazil, and the IMF," Working Paper Series WP03-1, Peterson Institute for International Economics.
    5. Canuto, Otaviano & Pinto, Brian & Prasad, Mona, 2012. "Orderly sovereign debt restructuring : missing in action !," Policy Research Working Paper Series 6054, The World Bank.

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