Contagion-free zone

4 November 2008 By Martin Hutchinson

Argentina s 2001 default caused contagion in Brazil, which came close to default in 2002. However an Argentine default now would not infect Brazil. Its relations with the West and the IMF are much better. And Brazil s economic policies and debt management are much sounder.

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On announcing the $100bn fasttrack facility for 3month loans from the International Monetary Fund, IMF president Dominique StraussKahn said the facility's conditions include having a very strong track record and strong policies in the past", so Argentina would not be eligible.

Brazil has $221bn of foreign debt, 14% of gross domestic product; its debt service (principal plus interest) in 2008 is projected at $47bn, 25% of exports. Argentina has $135bn of foreign debt, 45% of GDP; its debt service is projected at $14.5bn in 2008, 21% of exports.

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