The Sensitivity of Brazil\u27s Balance of Payments and Foreign Debt to Future Changes in World Economic Conditions: 1987-1991

The purpose of this paper is to analyze the sensitivity of Brazil\u27s balance of payments (including its foreign debt) to future changes in world economic conditions. To accomplish this, the determinants of the country\u27s balance of payments will be isolated and then empirically studied. Based upon these results,forecasts will be made under three different economic scenarios. The intent will be to determine the affect that different sets of world conditions have upon Brazil\u27s foreign debt and trade balance from 1987 to 1991. The hypothesis of this study is that continued industrial country growth, coupled with low world interest rates, will produce annual balance of payment surpluses. This will lead to a decrease in Brazil\u27s foreign debt over the next five years. On the other hand, if interest rates increase, followed by a world recession, Brazil will experience significant trade deficits over the next five years; this will severely undermine Brazil\u27s ability to service its foreign debt over the coming years. By way of conclusion this paper will relate the implications of Brazil\u27s future balance of payments and foreign debt situation to the success of democracy in the country. In addition, some of the positive steps that have been taken or that should be taken in ameliorating the external economic problem will be discussed. They will include, a better understanding of the problem by the industrialized countries, a new forum for re-negotiating the Latin American debt, and specific policies that the Brazilian government can adopt