Samba effect
Encyclopedia
Samba effect refers to the nearly 35% drop in the value of the Brazilian real
that occurred in 1999. The effect was caused by the 1997 Asian financial crisis which led Brazil
to increase interest rates and to institute spending cuts and tax increases in an attempt to maintain the value of its currency. These measures failed to produce the intended effect and the Brazilian government was forced to float
its currency against the US dollar, which led to the dramatic decrease in its value. The devaluation also precipitated fears that the ongoing economic crisis in Asia would spread to South America
, as many South American countries were heavily dependant on industrial exports from Brazil. These fears resulted in the Brazilian Government adopting an austerity program in order to receive a $41.5 billion dollar aid package from the United States
, International Monetary Fund
, and other world lenders. By the end of 1999 the effect was waning and the Brazilian economy was beginning to recover. However, unemployment was only slightly lower than before the effect, and remained more than twice as high than it was during the late 1980s and early 1990s.
Brazilian real
The real is the present-day currency of Brazil. Its sign is R$ and its ISO code is BRL. It is subdivided into 100 centavos ....
that occurred in 1999. The effect was caused by the 1997 Asian financial crisis which led Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
to increase interest rates and to institute spending cuts and tax increases in an attempt to maintain the value of its currency. These measures failed to produce the intended effect and the Brazilian government was forced to float
Floating exchange rate
A floating exchange rate or fluctuating exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency....
its currency against the US dollar, which led to the dramatic decrease in its value. The devaluation also precipitated fears that the ongoing economic crisis in Asia would spread to South America
South America
South America is a continent situated in the Western Hemisphere, mostly in the Southern Hemisphere, with a relatively small portion in the Northern Hemisphere. The continent is also considered a subcontinent of the Americas. It is bordered on the west by the Pacific Ocean and on the north and east...
, as many South American countries were heavily dependant on industrial exports from Brazil. These fears resulted in the Brazilian Government adopting an austerity program in order to receive a $41.5 billion dollar aid package from the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
, and other world lenders. By the end of 1999 the effect was waning and the Brazilian economy was beginning to recover. However, unemployment was only slightly lower than before the effect, and remained more than twice as high than it was during the late 1980s and early 1990s.