The Brazilian Debt-Equity Swap Program

With an external debt amounting to more than 110 billion dollars, Brazil is currently one of the most indebted countries. Since the eruption of the external debt crisis in 1982, Brazil has pursued a number of strategies to face this burden, including debt reschedulings and a moratorium on the payment of interests. This Article is focused on one of the strategies resorted to, the debt conversion program, officially enacted in Brazil in 1988. Upon reviewing the historical background of the foreign debt and its conversion, the Article discusses the different aspects of the debt-to-equity swap program, including eligible debt, conversions subject (and not subject) to auction, registration requirements, and release of funds.

The author disentangles the regulations applicable to debt conversions, considers who benefits and who loses through the program, and concludes that the overall winner is the country; although a formal debt-equity swap program is not the salvation, the conversion may improve the investment climate of Brazil.