A Brazilian-Style ‘Ponzi’

In the last two decades there have been four major financial crises in the Third World: the 1982 debt crisis (affecting mainly Latin America, with the Chilean economy the worst hit in the region); the 1994 Mexican crisis (and its repercussions throughout Latin America, particularly in Argentina, commonly known as the ‘Tequila effect’); the 1997 East Asian crisis, and the 1999 Brazilian one. The main characteristic of all these financial crises is that the economies most affected were those that had previously undertaken comprehensive processes of economic reform, particularly financial liberalization. Furthermore, these countries had not only liberalized their capital accounts and domestic financial sectors, but had done so at times of both high liquidity in international financial markets, and slow growth in most OECD economies, i.e. at times when a large, volatile and under-regulated international liquidity was anxiously seeking new high-yield investment opportunities.