Analysis of Brazil's Economic Crisis: A Comparative Study of 1980 and 2002

Running head: ECONOMIC ASSIGNMENT
Economic Assignment
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1ECONOMIC ASSIGNMENT
Table of Contents
Introduction......................................................................................................................................2
Recent Debt Crisis of Brazil............................................................................................................2
Past Debt Crisis of Brazil................................................................................................................4
Comparison and Persistence:...........................................................................................................6
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................11

2ECONOMIC ASSIGNMENT
Introduction
The main purpose of assessment is to analyze the economic condition of Brazil between
two period which is selected which are 1980 and 2002. The assessment focuses on debt crisis
situation which affected the country in both the selected period. The assessment conducts a
comparative analysis between the 1980 crisis and 2002 crisis in order to establish any similarities
or differences between the two situations. The analysis consists of graphs and statistical analysis
for the purpose of more detailed discussion and analysis. The assessment also aims to point out
the main reasons which initiated the economic crisis in the first place.
Recent Debt Crisis of Brazil
The recent debt crisis of the business which the economy of Brazil has faced in recent
year is shown for 2002. The IMF in 2002 granted the central bank of Brazil a boost by
sanctioning them with a debt of $ 16 billion in international reserves for defending the weak
currency of the country. The debt was not only borrowed by Brazil but also some other Latin
America countries such as Argentina. The main purpose behind such borrowings made by the
government was not only to recover the weak currency situation in the country but also to
promote rapid industrialization in the economy (Sen and Grown 2013). The world economy was
shifting towards industrialization and therefore to keep at par with rest of the world, Latin
American Countries started taking loans from IMF and other countries. An example as provided
above shows condition of Brazil where IMF granted Brazil up to $ 16 billion and in addition to
this also promised a further in total of around $ 30 billion.
As per the statistics available, the debt crisis of 2002 was very much severe on most of
the developing countries and especially Latin American countries. It is estimated that around

3ECONOMIC ASSIGNMENT
2/3rd of the financing for countries like Brazil, Mexico were being done through domestic debts
while the remaining I/3rd of the funds were procured from international sources such as other
countries and International Financing Institutions like IMF (Hermes and Lensink 2013). As per
the estimates of the economists, the national debt which was taken by the government came to
about $ 250 billion.
The main reasons which can be identified for the debt crisis which Brazil and other Latin
American countries faced during the period was mostly due to the economic downturn which had
affected the nation. The closest neighbor of Brazil is Argentina who at that time was facing from
economic crisis which was mainly to the policy of the country to apply deficit financing
(Reinhart and Rogoff 2013). The economy of Brazil was engaged in trade and commerce with
Argentina and therefore the debt crisis also affected the Brazil. The effect of Argentina impacts
the economy of Brazil and further resulted in the fall of the value of the currency. The
government of Brazil decided to reduce the overall use of debt capital and bring about a stability
in the value of currency of the business. The IMF further offered an assistance of $ 10 billion for
the purpose of bridging the gap.
Another reason which can be identified for the increasing pressure of debt of the business
is due to the high rate of inflation which affected the economy adversely. The prices of the
commodities kept on increasing on a continuous basis which resulted in increase in output costs
of the economy (Beirne and Fratzscher 2013). There are other minor reasons which also caused
increase in debts of the country which are fiscal deficits, unfavorable Balance of Payments of the
country. However, the most important factors which resulted in the hike in the debts of the
economy is due to the impact of economic downturn of the neighboring nation Argentina and the
same impacted the debt servicing ability of Brazil. Then three is the situation with the inflation