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Word Count: 5,159
On January 12 1999 over a billion dollars fled Brazil Three days later the Central Bank attempted to bring about a limited devaluation of the Brazilian currency the real but it failed to prevent a free fall Over the next two days another 3 billion was pulled out and by the end of the month the real had lost over 40 percent of its value The Central Bank president resigned his successor lasted a week and as speculative attacks continued President Fernando Henrique Cardoso in some desperation sought out one of international financier George Soross closest associates Arminio Fraga for the job Fraga used to manage a fund that took bets on macroeconomic changes such as currency devaluations in places like Brazil It was as the Brazilian press pointed out a case of putting the fox among the chickens The outlook for 1999 is grim Brazil is facing a deep recession and a return of inflation continuing volatility in the value of its currency a political cat fight over fiscal reform legislation in Congress acute stress in the relationship between the federal government and the states the risk of defaults on state and federal government debt as well as in the private sector and astronomic and unsustainable interest rates For Brazils partners in Mercosurthe common market that joins Argentina Paraguay Uruguay and Brazil-its plunge into recession and the quantum leap in the price of their own exports in the Brazilian market especially for Argentina which has locked its own currency into a one-to-one relationship with the US dollar by means of a currency board has put enormous strains on the fledgling trade bloc Other Latin American governments worried that investors would not differentiate between Brazil and the rest of the region slowing down access to the foreign capital needed to meet their own borrowing requirements The rest of the world grew fearful of contagion For the International Monetary Fund IMF and the US
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