National exchange rate policies and international debt crises: how Brazil did not follow Argentina into a default in 2001-2002

• Autor(a) principal: Johnson,Bryan Andrew Kenyon
• Data de Publicação: 2007
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Revista de Economia Política
• Texto Completo: http://old.scielo.br/scielo.php?script=sci_arttext&pid=S0101-31572007000100004
• topic: exchange rate policies; IMF Stand-By Arrangements; probability of default

This paper examines how exchange rate policies and IMF Stand-By Arrangements affect debt crises using econometrics and a comparison between Argentina and Brazil. It refines an existing diagram outlining crisis development to propose crisis prevention strategies. Flexible exchange rate policies reduce a country's probability of default by over 4%, but Stand-By Arrangements increase it by an inconsequential percentage. Unlike Argentina, Brazil avoided a default via a freely-floating exchange rate system, fiscal deficit reduction, and a cooperative and coordinated relationship with the IMF. The results provide policymakers from developing countries with lessons to manage their countries' default risks more effectively.