Why are Brazil's Interest Rates so High?
44 Pages Posted: 25 Oct 2002
Date Written: July 14, 2002
Abstract
Brazil's public debt is large and interest payments weigh dangerously on the government's budget. In 2001 interest expenditure amounted to 7,3 per cent of GDP. On a mark-to-market basis (that is considering the effect of exchange rate depreciation on the value of foreign currency-denominated bonds) interest expenditure reached 9 per cent of GDP. These figures are large, though not unusual in high debt countries: they are comparable to those observed in some European countries (Italy, Greece and Belgium) prior to monetray union. Two factors contribute to this level of debt service: the size of the debt and the average cost of the debt.
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