This is a study of the factors underlying the current account deficits experienced by Brazil since the mid-1970s. It also explores the country’s economic prospects through 1989, with the help of a simple macro-simulations model. The current account deficit is identically equal to the excess of domestic spending over national income. Provided that net external financing is available, this excess may increase for a number of reasons. Prominent among them is an expansion of real domestic spending, associated with increases either of real consumption expenditures or of real domestic capital formation. Even if domestic absorption is invariant, the external deficit may worsen because of inadequate domestic pricing policies. These may make it impossible for local firms to compete with cheaper foreign products, thus forcing a contraction of national income and employment. A temporary reduction of GNP below its potential value may also be caused by domestic supply shocks of a climatic or other nature. However, other factors can also cause a deterioration of the current account. In this context, this study investigates the factors underlying the evolution of the external accounts of Brazil since the mid-1970s following an approach suggested in the Dell Report and elaborated by Balassa.’ The reasons for a deterioration of the current account are divided into three groups: external shocks, burden of accumulated debt, and domestic policy actions. The first group comprises terms of trade, international interest rates, and world recession. The second includes the accumulated effect of past shocks and domestic policy actions. Finally, the third group encompasses the variables supposedly under the control of local policy-makers: domestic absorption and the economy’s tradability.