Policy Mix, Public Debt Management and Fiscal Rules : Lessons from the 2002 Brazilian Crisis

Despite significant progress in economic reform throughout the 1990s, and an exemplary development of the policymaking framework in the second part of the decade, Brazil suffered a major public debt and currency crisis in 2002. Though the political origin of the uncertainty cannot be ignored, the author identifies other sources of uncertainty emanating from the policymaking framework: fiscal policy was not responsive to the shocks, public debt instruments were used with several objectives (to stabilize the currency and to lengthen maturity) and there was inadequate supervision of agents holding public debt. Most of the flaws have been fixed following the crisis: a) The primary fiscal balance has been increased, sending the signal that it is a flexible instrument that will be used to ensure commitment of the sovereign to honor its obligations. b) The central bank formally transferred to the Treasury the remaining debt-issuance functions, facilitating a more adequate balancing of different risks involved in debt management. c) Mutual funds' public debt holdings are better regulated, ensuring that end-investors have the proper information to assess the risk of the institutions in which they invest.

Bibliographic Details

Main Author:	Herrera, Santiago
Language:	English
Published:	World Bank, Washington, DC 2005-02
Subjects:	ACCOUNTING, ASSET PRICES, ASSET RETURNS, BALANCE SHEETS, BANK RUN, BANKING CRISES, BANKING SECTOR, BOND PRICES, BONDS, BORROWING, CAPITAL EXPENDITURES, CAPITAL FLOWS, CAPITAL MARKETS, CENTRAL BANK, CREDIT RISK, CURRENCY, DEALERS, DEBT, DEBT BURDEN, DEBT INSTRUMENTS, DEBT LEVEL, DEBT MANAGEMENT, DEBT REFINANCING, DEBT SERVICE, DEBT SUSTAINABILITY, DEBTORS, DEFICITS, DEPOSITS, DIRECT INVESTMENT, DOMESTIC DEBT, DOMESTIC PUBLIC DEBT, DRAFTS, ECONOMIC REFORM, ENTITLEMENTS, EQUILIBRIUM, EXCESS LIQUIDITY, EXCHANGE RATE, EXCHANGE RATES, EXPENDITURE, EXPORTS, EXTERNAL DEBT, EXTERNAL FINANCING, FACE VALUE, FINANCIAL CRISES, FINANCIAL INTERMEDIARIES, FINANCIAL POLICIES, FINANCIAL TRANSACTIONS, FISCAL CONDITIONS, FISCAL POLICY, FISCAL REFORM, FORECASTS, FOREIGN BANKS, FUTURE VALUE, GDP, GOVERNMENT BONDS, GOVERNMENT EXPENDITURES, GOVERNMENT SECURITIES, GROWTH RATE, HEDGING, ILLIQUIDITY, INCOME, INDEBTEDNESS, INDEXATION, INFLATION, INFLATION RATE, INTEREST PAYMENTS, INTEREST RATE, INTEREST RATE RISK, INTEREST RATES, INTEREST/, INTERNATIONAL RESERVES, LEGAL FRAMEWORK, LIABILITY, LIQUIDITY, LIQUIDITY RISK, LOCAL CURRENCY, MANDATES, MARKET POWER, MARKET RISK, MARKET VALUE, MATURITY, MONETARY AUTHORITIES, MONETARY POLICY, MUTUAL FUND, NATIONAL INCOME, NET WORTH, OIL, OPEN MARKET OPERATIONS, PRESENT VALUE, PRESENT VALUE OF DEBT, PRICE CHANGES, PRICE CONTROLS, PRIMARY DEALERS, PRIVATE DEBT, PROBABILITY OF DEFAULT, PUBLIC DEBT, PUBLIC ENTERPRISES, PUBLIC SAVINGS, REDEMPTION, REFINANCING, REPO, RESERVE REQUIREMENT, RESERVE REQUIREMENTS, REVENUE SHARING, RISK AVERSION, RISK MANAGEMENT, RISK PREMIUM, SAVINGS, SECURITIES, SOLVENCY, SOVEREIGN DEBT, SOVEREIGN RISK, TAX REFORMS, TAX REVENUE, TAXPAYERS, THEORETICAL MODELS, WAGES, WEALTH, YIELD CURVE,
Online Access:	http://documents.worldbank.org/curated/en/2005/02/5635025/policy-mix-public-debt-management-fiscal-rules-lessons-2002-brazilian-crisis https://hdl.handle.net/10986/8910
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