Debt-for-Equity Swaps: Brazil's Attempt to Reduce its Foreign Burden

Author

Monica Brait Rodrigues, Fontbonne College

Year of Award

1988

Degree

Master of Business Administration (MBA)

College

College of Business & Professional Studies

Degree Program

Business

Department

Business Administration

Keywords

South America, oil, debt restructure, GDP

Abstract

Brazil being a developing country and being exposed to politic, economic and social changes, national and internationally, growth has been a challenge and a goal not easy to accomplish.

In two decades Brazil became, from an economic model for developing countries, the Third World’s largest debtor with a total foreign debt of $120 billion.

Basically the increase of the Brazilian foreign debt got out of control after the oil shock in 1974 with Brazil's necessity of making higher foreign loans added to the absurdly high interest rates.

Different approaches were taken in a tentative to minimize foreign debt problem. In 1987 the moratorium was announced for an undetermined period of time when Brazil would not pay the interest owed to foreign private banks. As result Brazilian economy was. hurt as credit lines were canceled and investments declined. A better and seen by foreign creditors as a more positive approach was taken this year when Brazil declared the end of moratorium by returning to make interest payments. This led to a debt rescheduling accord between Brazil and foreign creditors.

Another considerable important measure taken in order to guide the country back to its economic growth track was to establish the Debt-for-Equity Swaps Program. Even though Debt-for-equity swaps is not considered a solution for the- foreign debt problem it will bring back foreign investment to Brazilian economy and as a consequence economic growth which is very important in order to finance the country's debt.

Positive and negative aspects related to debt-for-equity swaps program exist in the short- and long-term range. Control measures are being taken to avoid or at least minimize those effects and they are having good results.

With new perspectives in mind foreign investors and Brazil can work towards a better Brazilian economy and therefore, towards a better World's economy.

Document Type

Restricted Thesis

Recommended Citation

Rodrigues, Monica Brait, "Debt-for-Equity Swaps: Brazil's Attempt to Reduce its Foreign Burden" (1988). All Theses, Dissertations, and Capstone Projects. 514.
https://griffinshare.fontbonne.edu/all-etds/514