External financial support and economic stabilization

ABSTRACT This essay tries to evaluate Minister Marcílio Marques Moreira’s approach on Brazil’s external debt negotiations. It starts recognizing that external debt restructuring should contribute simultaneously to the correction of public sector financial imbalances and to the stability of the exchange rate. The decision to simply adhere to current Paris Club and Brady Plan type agreements for middle-income countries will result in small debt service relief. Minister Marcílio’s strategy requires therefore further public sector adjustment and new capital inflows to succeed. The correction of public sector imbalances has not been achieved yet, and foreign investors, in the face of high macroeconomic instability, still cling to short term instruments with high returns which are known to be unsuitable to finance stabilization policies. The signment of agreements with external creditor before achieving the requirements to meet them in a non-inflationary way is the main flaw of the strategy.