Case | HBS Case Collection | February 2004 (Revised March 2010)

Brazil 2003: Inflation Targeting and Debt Dynamics

by Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel


In October 2002, Brazilians elected a left-wing president, Luis Inacio Lula da Silva, for the first time in that country's history. As markets faltered in response, Lula sought to reaffirm his commitment to fiscal discipline, a floating exchange rate, and inflation targeting. By August 2003, however, his attempt to change market sentiment was threatened as the country faced a looming recession. Skeptics began to worry that the new PT (Worker's Party) government would be forced to resort to printing money to meet its campaign promises. Furthermore, after Argentina's massive default on its public debt at the end of 2001, observers were questioning the sustainability of Brazil's debt situation. Lula was under intense pressure to deliver results immediately and implement measures that would help spur the economy.

Keywords: Economy; Inflation and Deflation; Money; Borrowing and Debt; Policy; Emerging Markets; Brazil;


Alfaro, Laura, Rafael M. Di Tella, and Ingrid Vogel. "Brazil 2003: Inflation Targeting and Debt Dynamics." Harvard Business School Case 704-028, February 2004. (Revised March 2010.)