Cultural Revolutions

Another Bailout

Brazil is about to receive another IMF bailout, funded chiefly by American taxpayers.  While the main beneficiaries will be a few private banks whose loans are at risk, there is practically no public debate about the deal.

This is the second Brazilian bailout in only four years.  In the summer of 1998, the IMF put together a $41.5-billion rescue package to help Brazil avert a financial crisis.  On September 29 of that year, the Financial Times warned that “Washington [is] on red alert over Brazil . . . damage to Latin America’s largest economy would bring crisis right to U.S. front door.”  Earlier in 1998, according to the Federal Reserve, U.S. bank exposure to Brazil had exceeded $27 billion; by contrast, these same banks only had a $6.8-billion exposure in Russia.  “If Brazil goes,” debt strategists at Merrill Lynch warned, “there will be no way of shielding the U.S. economy” from the crisis.  In the end, Brazil did not “go,” because public money was used to rescue private investors who had placed capital into risky but lucrative ventures.  The absence of private-creditor involvement was a striking aspect of the bailout program.  The message to creditors was clear: Be calm; stay put; you will be fully paid.

It is, therefore, not surprising that, over the past four years, private banks have continued lending money to...

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