Is Brazil the Next Domino?
Flying Down to Rio
If the world needed any greater proof that globalization was (1) here to stay and (2) a force to be reckoned with, the flighty behavior of the Latin American markets in the wake of the Asian crisis supplied it in spades. On a morning in late fall 1997 after we checked into our high-rise hotel on Rio’s Copacabana Beach, the high-flying Rio stock market took a stomach-churning 15 percent tumble, prompted by desperate doings in far-off Hong Kong. That same morning, a sickeningly swift 10 percent drop on the São Paulo exchange in the first four minutes of the session forced the governors to halt trading for the first time in the exchange’s history.
The steepest declines were racked up by a series of high-flying Brazilian blue chips that had enjoyed an average 93 percent climb in the first nine months of 1997. Anchoring the group were the three prime poles of the Brazilian privatization tripod: Telebras, the state-owned telecom company; Eletrobras, the state-owned electrical utility; and Petrobras, the state-owned oil and energy company. With the Bovespa (Brazilian Stock Exchange index) dropping like mercury in an ice storm, it looked as if the second-best-performing stock market in the world (after Russia) was heading full-speed into a brick wall.
Reach Out and Touch Someone
So why were global investors getting so hot and bothered over Latin America, when the currency crisis appeared to be confined to Asia, half a planet away? ...