Abstract
In the course of the acute crisis year 1998, Brazil was increasingly feeling the heat of the general erosion of confidence in emerging countries. Contagion from the Asian and Russian crises was spreading fast and reached Brazil in the summer of that year. It came as no surprise that Latin America would be next in line to be attacked, and in that sense the developments in Brazil were less dangerous than the largely unanticipated attack on Korea. Brazil, whose economy was roughly the same size as that of Korea, enjoyed sound leadership under President Fernando Henrique Cardoso, who seemed to be more open to reform than the policymakers of troubled Asian countries. The Banco Central do Brasil had also built up a healthy stock of foreign exchange reserves (some $70 billion in the immediate precrisis period), providing a relatively high degree of insurance against sudden capital outflows.
Keywords
Exchange Rate Monetary Policy European Central Bank Foreign Bank External DebtPreview
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Notes
- 1.Described in Gustavo H. B. Franco (2000). “The Real Plan and the Exchange Rate.” Essays in International Finance No. 217. Princeton University (April).Google Scholar
- 3.Independent Evaluation Office (2003). The IMF and Recent Capital Account Crises: Indonesia, Korea, Brazil. International Monetary Fund, p. 23.Google Scholar
- 8.My own position continued to be that Brazil should manage the float rather than leaving the real completely free to find its own level. This stance was a response to the so-called bipolar approach to exchange rate regimes, choosing either a hard peg or a free float. See Stanley Fischer (2004). “Is the Bipolar View Correct?” in Stanley Fischer, The IMF in a Time of Crisis. Cambridge, Massachusetts: MIT Press, pp. 227–54.Google Scholar
- 12.In its report on capital account crises in Indonesia, Korea, and Brazil, the IEO referred to one executive director arguing during the annual discussion of the Brazilian economy in 1997 that consideration should be given to allowing the exchange rate to float, so as to avoid a crisis of the real if investors lost confidence in Brazil. And, in February 1998, “one Executive Director … expressed displeasure over the absence of a clear discussion of exchange rate options in the papers prepared for the Board by the staff.” IEO (2003). The IMF and Recent Capital Account Crises: Indonesia, Korea, Brazil. International Monetary Fund, p. 123.?Google Scholar