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

49 Pages Posted: 3 Aug 2000

See all articles by Afonso S. Bevilaqua

Afonso S. Bevilaqua

Catholic University of Rio de Janeiro (PUC-Rio)

Marcio G. P. Garcia

Pontifical Catholic University - Department of Economics

Date Written: November 1999

Abstract

In 1994-98, Brazil's domestic debt grew very rapidly while remaining short in maturity. The main policy recommendations for managing this domestic debt situation: maintain a tighter fiscal stance and consider the use of inflation-linked bonds.

Brazil's domestic debt has posed two challenges to policymakers: it has grown very fast and, despite progress, remains extremely short in maturity.

Bevilaqua and Garcia analyze Brazil's experience with domestic public debt management, searching for policy prescriptions for the next few years.

After briefly reviewing the recent history of the country's domestic debt, they decompose the large rise in federal bonded debt in 1995-98, searching for its macroeconomic causes. The main explanations: extremely high interest payments (caused by Brazil's weak fiscal stance and quasi-fixed exchange rate regime) and the accumulation of assets (especially obligations of Brazil's states).

Simulations of the net debt path for the near future underscore the importance of a tighter fiscal stance to prevent the debt-to-GDP ratio from growing further.

The authors' main policy advice is to foster and rely more on inflation - linked bonds - the least harmful way to lengthen debt maturity.

This paper - a product of the Brazil Country Office, Latin America and the Caribbean Region - is part of a larger effort in the region to assist in better management of Brazil's domestic debt. Contact Suman Bery, email address sbery@worldbank.org.

JEL Classification: E65, H63

Suggested Citation

Bevilaqua, Afonso S. and Garcia, Marcio G. P., Debt Management in Brazil: Evaluation of the Real Plan and Challenges Ahead (November 1999). World Bank Policy Research Working Paper No. 2402. Available at SSRN: https://ssrn.com/abstract=228786

Afonso S. Bevilaqua (Contact Author)

Catholic University of Rio de Janeiro (PUC-Rio) ( email )

Rua Marquas de Sao Vicente, 225
RJ 22453-900 Rio de Janeiro, 22453-900
Brazil

Marcio G. P. Garcia

Pontifical Catholic University - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil
(5521) 274 2797 or 294 5490 (Phone)
(5521) 294 2095 (Fax)

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