Brazil: Anchoring Policy Credibility in the Midst of Financial Crisis

Lorenzo L. Pérez, Philip Gerson and Arminio Fraga
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Lorenzo L. Pérez: Middle East and Central Asia Department
Arminio Fraga: Central Bank of Brazil

Chapter 6 in Successes of the International Monetary Fund, 2009, pp 106-124 from Palgrave Macmillan

Abstract: 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.

Keywords: Monetary Policy; Central Bank; Exchange Rate Regime; Foreign Exchange Market; Macroeconomic Policy (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-23949-4_6

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DOI: 10.1057/9780230239494_6

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