Managing Brazil's Public Debt under the original-Sin Hypothesis

Since public bond debt became a central element in the dynamic of public sector indebtedness in Brazil, its composition has played an important role in the conduction of macroeconomic policy. This article discusses the original-sin hypothesis formulated by Eichengreen and Hausman (1999) to evaluate the composition of Brazilian federal public debt. According to this hypothesis, the choice between indexation and duration takes the form of a trade-off, since the long-term, fixed-rate debt alternative that characterizes developed countries is not available to emerging countries. We present empirical evidence for Brazil, observing the 40-year evolution of federal bond debt since the creation of that market, which took place through the introduction of the instrument known as the ORTN in 1964.