The Management of Developing Countries' Debt Guidelines and Applications to Brazil

Some principles which may be useful in formulating a debt management strategy are articulated. There are four major policy recommendations: (1) stretch out the repay-ment of the debt; (2) monitor both exports and GDP; (3) ignore the capital loss of the creditors; and (4) watch the domestic deficit. The goal of the recommendations is the maximization of the intertemporal welfare of the country under the constraint that it services its debt. The financial crisis of 1982 sent a simple message: the developing countries ' debt could not be rolled over according to the previous rules of the financial game. In order to service their debts, debtors were required to reduce their imports and boost their exports. At that time, the main uncertainty was: would a debtor country default rather than adjust? Today, this question has been partially an-swered. Brazil, for example, chose to generate a $10 billion (billion is 1,000 million) (noninterest) surplus rather than default on its external debt, an action which can help to change the view that some may have had of the developing countries ' debt problem. Furthermore, the shocks which now seem to affect th