“Credibility and Public Debt Management: A Case Study of Brazil”. Edited by Banco Nacional de Desenvolvimento Económico e Social (BNDES), Brazil, 1998.


by F. Llussá

The volume has received the 21st “Prêmio BNDES de Economia”.

This book discusses the management of Brazilian public debt, especially as it refers to the profile of disbursements. We first discuss three very recent models in economics that deal with the issue and survey how the federal debt in Brazil has evolved in its characteristics of size, composition, maturity and cost.

We analyze the supply of public debt as well as the demand side, arguing that extending the average maturity, in a context of low credibility, would imply the payment of a premium that would compensate the long-run risk associated with investing in public debt.

We suggest that cost would be too high and the supply of long-run debt, when the stabilization of the Plano Real had not yet been achieved, would just transfer to the future the low credibility levels existing today.

We provide a critical analysis of the existing theoretical models, emphasizing that a pre-condition to extending the maturity of public debt issues in Brazil is a gain in credibility that depends, necessarily, on a fiscal adjustment that is sustainable in the long-run.

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