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focusBrazil: The Real and Global Crisis

THE financial crisis which began in Thailand in July 1997 has now moved to Brazil and Latin America. Brazil is in the throes of a full-blown financial crisis which threatens not only to impact on its real economy but also to trigger off a fresh round of turbulence in the global economy. The crisis has dealt an even more serious blow to the credibility of the IMF. Its $41 billion economic package for Brazil, designed to preempt the crisis has clearly failed in its objective. The IMF's continued insistence on high interest rates and the sanctity of the "free market" has exacerbated the crisis.

Even in the face of the failure of these measures to stem the flight of capital and the precipitous decline of the Real, Brazil does not seem ready to consider other policy alternatives such as capital controls and a fixed exchange rate. Brazil is the eighth largest economy in the world and the impact of its crisis is bound to reverberate well beyond its shores. Clearly, we are headed for turbulent times.

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