Vanderbilt Journal of Transnational Law


Mark J. Roe

First Page



In roughly a dozen years, Brazil has created a sophisticated multi-billion dollar system of public debt in the midst of an unpredictable inflationary financial climate. During this time the government bonds were initially all indexed against inflation; the obligations were automatically periodically adjusted in accordance with price index changes. However, as shall be seen, the indexation of the bonds was not necessarily the cause of the expansion of the market for public debt.

The legal-economic mechanism of Brazilian indexation is not widely understood in the United States. The method used to calculate the index that provides the basis for readjusting the indexed Brazilian government obligations has been frequently and unpredictably changed, primarily to improve and refine the index. At other times strong macroeconomic justifications support the changes. Thus, because the indexed adjustments are not made solely on the basis of predetermined and objective indicia of inflation, a jurisprudential structure has arisen similar to that in other systems in which the government undertakes macroeconomic adjustments that often unpredictably affect private obligations. Because the Brazilian government itself chooses the method by which the value of its existing debt is calculated, informed autonomous buyers of indexed government bonds have been relying upon the government not to alter the method of calculation unless there is a technical, economic justification for doing so, and have been discounting the risk of such unforeseen changes. Much of the indexed government bond market is, however, not autonomous; the indexed government bond in effect serves as a flexible accounting device for ordering the obligations of large, state-controlled enterprises and private enterprises that are required or induced by regulation to acquire the government's indexed bonds...

This article will examine the development of indexed financial instruments of the Brazilian government and related public and private indexed instruments, and will note some basic economic and legal distinctions between relevant Brazilian and American institutions. Additionally, the Brazilian system will be compared to the doctrine of the constitutional role of the state in government and private finance emerging from the Gold Clause Decisions and later related decisions of the Supreme Court, and to the role of rules in the development of European capitalism.