National exchange rate policies and international debt crises: how Brazil did not follow Argentina into a default in 2001-2002

this paper examines how exchange rate policies and imf stand-by arrangements affect debt crises using econometrics and a comparison between argentina and brazil. it refines an existing diagram outlining crisis development to propose crisis prevention strategies. flexible exchange rate policies reduce a country's probability of default by over 4%, but stand-by arrangements increase it by an inconsequential percentage. unlike argentina, brazil avoided a default via a freely-floating exchange rate system, fiscal deficit reduction, and a cooperative and coordinated relationship with the imf. the results provide policymakers from developing countries with lessons to manage their countries' default risks more effectively.