Miriam Leitao at PostGlobal

Miriam Leitao

Rio de Janeiro, Brazil

Miriam Leitao is a reporter and columnist for O Globo and Radio CBN in Brazil. She is also a commentator on Globo TV Network and runs her own blog, www.miriamleitao.com, hosted at Globo online at www.oglobo.com.br. She was awarded Columbia University’s Maria Moors Cabot Prize in 2005. Close.

Miriam Leitao

Rio de Janeiro, Brazil

Miriam Leitao is a reporter and columnist for O Globo and Radio CBN in Brazil. more »

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No Ordinary Sneeze

The Current Discussion: If countries around the world are doing so well economically, why are they still catching a cold when the United States sneezes?

Brazil is very proud of itself. For the first time, we remember we’re in a good position relative to the outside world: very low foreign debt, no outstanding foreign currency liabilities, and record high hard-currency reserves. Governmental authorities have assured us that the Brazilian economy is as shielded from outside turbulence as it has ever been. Thousands of middle-class Brazilians who have been hurt by the several financial crises of the 1990s invested their money in the stock market. In December alone, 100,000 new small investors made their debut in Brazil’s market. Despite good fundamentals and widespread optimism, the Brazilian Stock Exchange plunged into a free fall this Monday. To us, it seemed to be even more unfair because Americans were on their civic holiday, aloof to the turmoil of which their country was the epicenter. Actually the American people, especially the poor, have been bleeding since the beginning of the sub-prime crash.

Now, Brazilians are trying to understand what we did wrong this time. We have worked hard to avoid the sad consequences of the past, such as exchange rate crises, external debt defaults and IMF rescue packages. The economy has a strong trade surplus, consistent balance of payments surplus, a record-high level of external reserves, shrinking external debt, a stabilized inflation rate, and a GDP that is growing at 5% per year. Why are we catching a cold because of this inconvenient American Sneeze?

First of all, this crisis is not just an ordinary sneeze. God bless the American economy, but the diagnosis is far worse. It seems that the American economy is running into a recession in the midst of a monumental credit crunch. The “doctors” are confused in choosing the right “medicine”. They are proposing more public spending in an economy that already has a fiscal imbalance. They also propose a strong cut in interest rates in an economy that has entered a consumption bubble, a side effect of extending too much credit at too low an interest rate.

The second reason for Brazil to be infected by somebody else’s sneezes – or a worse disease – is that we are all connected, for better or for worse. Globalization is real. There are no longer entirely local markets in the advanced and emerging economies. Powerful hedge funds buy and sell everywhere, spreading panic and mania.

The third and more conventional reason is that the U.S. is Brazil’s largest investor and importer, despite strong Brazilian export growth into other markets, especially China.

The U.S. is still the largest and most powerful economy on earth. However, it is ironic to see some of the recent events taking place. During Brazil’s long and debilitating debt crises in the 1980s and 1990s, Citibank led the committee of creditors to help Brazil recover. The bank’s executives played that role as if they were the masters of the world. But today, the bank – as well as other former holders of Latin American debt – is in deep trouble and has been rescued by sovereign funds from emerging markets and oil-rich countries, such as Singapore and Kuwait, and funds from a Saudi prince. The U.S. is still the center of the global economy, but many things are changing. Nowadays, when the U.S. market sneezes, it first affects its own economy.

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