Double Bailout for Brazil

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.