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The devaluation of Brazil's currency threatens to plunge markets around the world back into uncertainty. Stock markets had clawed their way back to new highs after worldwide volatility had led to a spate of interest-rate cuts. Even in beleaguered Asia, some markets had improved by 50 per cent over the last quarter. An IMF bailout of Brazil had helped stabilise the currency and stem capital flight. But it now appears that IMF support may not be enough. Brazil faces a drain of a billion dollars a day. Besides, the need to keep the currency stable has resulted in pushing Brazil into a recession, and the political strain is severe.
It is too early to say whether the Brazilian devaluation will snowball into a major crisis for the world markets, and to what extent the contagion will spread. But these recurring jolts point to an underlying fault in the world economic system. The meltdown in Asia and its spread to Russia had sparked off a debate on the need to restructure the world financial system. It is to be hoped that the latest manifestation of the crisis should spark some action. More people are now recognising the need for some sort of international regulation which will prevent economies from becoming hostage to the insecurities of currency speculators. Even George Soros has pointed out that the world financial system has no inherent tendency towards equilibrium, and that the problems will become progressively more intractable the longer they are allowed to fester. As Soros warned in his book, `The crisis of Global Capitalism', "To put it bluntly, the choice confronting us is whether we will regulate global financial marketsinternationally or leave it to each individual state to protect its interests as best it can. The latter course will surely lead to the breakdown of the gigantic circulatory system which goes under the name of global capitalism."
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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