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April 04, 2005
Lessons From The Good News From Brazil
So, if all goes to plan, Brazil will repay the IMF (in full) after six years. That is a longer than the three years that the IMF demands (in theory) for large-scale loans made through its crisis response facility (that facility is called the SRF). Brazil would not have been able to repay the IMF on the 3 to 5 year time frame associated with the IMF's normal "lending facility " for smaller-scale lending (a "Stand-by arrangement or SBA) either...
So why couldn't Brazil repay the IMF more quickly, on something like the terms of the IMF's crisis response facility? Simple: Brazil has lots of debt, mostly domestic, and relatively low reserves for an economy of its size -- it needed the IMF's money to allow it time to grow out of an (almost) unsustainable debt burden, and to allow it time to rebuild its reserves. It was never realistic to think that Brazil only needed a very short-term loan...
This is one of the issues Nouriel and I tried to highlight in our book on responding to financial crises in emerging economies: if the IMF to going to be used to help out (or bail out, depending on your point of view) emerging economies with far more debt than Mexico or Korea, the IMF -- realistically -- is not going to get repaid all that quickly, even when everything works well.
You can find out about the Roubini and Setser book via this link.
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