Brazil: Dealing with International Shocks

On January 15, 1999, the Brazilian central bank, in the face of massive speculative attacks on the Brazilian real, decided to let the real float. In the foreign exchange markets, the real fell sharply. The Brazilian economy appeared to be entering a severe recession. The Brazilian financial crisis represented another fallen domino in the global contagion that had started in the summer of 1997 in Thailand. This case describes the set of macroeconomic policies known as the Real Plan that the Brazilian government had implemented since 1993, its impact on the Brazilian economy, and the impact of global contagion on Brazil. It was written as an exam case for the first-year economics course at Darden. It may be used in a course on open economy macroeconomics and international finance.