Brazilian crisis
The Brazilian crisis is a severe economic financial crisis in Brazil , the largest country in Latin America , in 1999.
prehistory
Since the mid-1980s, Brazil's inflation rates have been staggering. It peaked in 1990 with a monthly inflation rate of over 80%. After stabilizing temporarily, it rose again to over 40% by 1994.
The Plano Real was supposed to provide a solution : In addition to a cut in government spending and an increase in taxes , the inflation-protected “Unidade Real de Valor” (URV) was created as a stable unit of account and from this in July 1994 the new currency, the real, was created previous Cruzeiro replaced. In order to ensure the stability of this currency, it was linked to the US dollar via a currency board ( see: Fixed exchange rate ). The inflation rates in Brazil were massively reduced by this measure, the economy experienced a growth phase.
The crisis
Since the inflation rates in Brazil were still higher than the inflation rates in the USA despite the massive drop, the real also systematically appreciated in the following years. This led to a large foreign trade deficit for Brazil. Since at the same time no consolidation measures were taken in the national budget in Brazil, the result was a twin deficit, which means that the national budget was also in deficit.
As a result of this twin deficit, speculative positions in the financial markets against the real increased in 1998. In particular, when Itamar Franco , a former president of Brazil and governor of the state of Minas Gerais, announced that he would cease servicing his state's debt , there were massive sales of the real. The central bank intervened and bought Real to stabilize the course.
On January 12, 1999, the attempt to keep the real rate artificially high had to be abandoned. The head of the central bank resigned and the rate of the real collapsed by more than half at its peak.
The result was a noticeable rise in inflation and an economic slump that plunged the country into major financial misery. Only after major restructuring could this crisis be softened over time.
Furthermore, the Brazilian crisis is generally considered to be the ultimate trigger of the Argentine financial crisis , as the two neighboring countries have strong economic ties and thus the economically already troubled Argentina was not unaffected by the situation in Brazil and triggered the failure of the currency board installed in Argentina in 1991.
See also
Itemized list
- ^ A b William C. Gruben, John H. Welch: Banking and Currency Crisis Recovery: Brazil's Turnaround of 1999. In: Economic and Financial Review. 4th Quarter, 2001, ISSN 1526-3940 , pp. 12-23, ( digital version (PDF; 140.55 kB) ).