Brazil 2


On January 12, 1999, over a billion dollars fled Brazil. Three days later, the Central Bank attempted to bring about a limited devaluation of the Brazilian currency, the real, but it failed to prevent a free fall. Over the next two days, another $3 billion was pulled out, and by the end of the month, the real had lost over 40 percent of its value. The Central Bank president resigned, his successor lasted a week, and as speculative attacks continued, President Fernando Henrique Cardoso, in some desperation, sought out one of international financier George Soros's closest associates, Arminio Fraga, for the job. Fraga used to manage a fund that took bets on macroeconomic changes, such as ...

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sector; and astronomic and unsustainable interest rates.
For Brazil's partners in Mercosurthe common market that joins Argentina, Paraguay, Uruguay, and Brazil-its plunge into recession and the quantum leap in the price of their own exports in the Brazilian market (especially for Argentina, which has locked its own currency into a one-to-one relationship with the U.S. dollar by means of a currency board) has put enormous strains on the fledgling trade bloc. Other Latin American governments worried that investors would not differentiate between Brazil and the rest of the region, slowing down access to the foreign capital needed to meet their own borrowing requirements. The rest of the world grew fearful of "contagion." For the International Monetary Fund (IMF) and the U.S. Treasury (and ultimately the American taxpayer), which gambled in November 1998 that a huge $41.5 billion package of multilateral assistance for Brazil would sustain the value of the real, the realization began ...

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also consumer goods.
The flip side of this rosy picture was heavy borrowing on the international financial markets-"external savings" as the economists put it with Orwellian obfuscation. Brazil was not alone in this game, since it was an integral part of the new equation whereby the liquidity of global capital flows made such deficit financing highly profitable. Brazil was, after all, now an "emerging market," and a very big one at that. It was no longer "third world" or "underdeveloped" or even "developing," much less a country with a history, institutions, and a young democracy shaking off the legacy of two decades of authoritarian rule. To money managers in New York, London, and ...

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PAPER DETAILS
Added: 3/20/2008 12:06:50 PM
Category: World History
Type: Premium Paper
Words: 5127
Pages: 19

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