National exchange rate policies and international debt crises

Vol. 27 No. 1 (2007)

Jan-Mar / 2007
Published March 17, 2020

How to Cite

Johnson, Bryan Andrew Kenyon. 2007. “National Exchange Rate Policies and International Debt Crises: How Brazil Did Not Follow Argentina into a Default in 2001-2002”. Brazilian Journal of Political Economy 27 (1):60-81.

National exchange rate policies and international debt crises

how Brazil did not follow Argentina into a default in 2001-2002

Bryan Andrew Kenyon Johnson
Analyst of HSBC Bank plc, 8 Canada Square, London
Brazilian Journal of Political Economy, Vol. 27 No. 1 (2007), Jan-Mar / 2007, Pages 60-81


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.

JEL Classification: B23, C12, C23, E44, E61, F34.

Keywords: exchange rate policies IMF Stand-By Arrangements probability of default