THE LAST STAND

November 24, 1998
		The IMF put together a $41.5 billion deal to help Brazil defend its economy against the spreading global economic crisis. Asia's and Russia's economies have already been crippled. Will the IMF plan work this time?

Will the IMF plan cause a recession in Brazil? Can the IMF restrict the way bailout funds are distributed? Is Brazil's economic problems due to graft? How many years will it take for Brazil to recover? Does this plan deal with the "moral hazard" associated with international bailouts?     November 13, 1998: A detailed look at the IMF/Brazil deal. October 27, 1998: A look at Russia's collapsing economy. October 20, 1998: The global economic crisis is hurting U.S. companies. October 15, 1998: The Federal Reserve cuts interest rates to fend of an economic downturn. October 9, 1998: A discussion of the global economic crisis. Browse the NewsHour's coverage of economic issues.

Despite a series of financial bailouts, the International Monetary Fund has been unable to stop the spread of the growing global economic crisis. Its critics argue the IMF, the international organization that acts as a lender of last resort for troubled nations, has done too little, too late to prevent the economic turmoil Indonesia and Russian. Now the IMF has intervened to help another teetering economy: Brazil, the economic backbone that accounts for 43 percent of Latin America's gross domestic product. U.S. banks reportedly have $34 billion in outstanding loans in Brazil, and if the Brazilian economy falters, the economies of its neighbors and the U.S. could be hurt. In an attempt to stave off such problems, finance officials from around the world have assembled a $41.5 billion loan package for Brazil to quell investor panic, $37 billion of which will be available in the next 12 months if needed. The deal mixes $18 billion from the IMF, $9 billion from the World Bank and the Inter-American Development Bank, and $14.5 from leading industrial nations, including $5 billion from the U.S. and $7.55 billion from European Union nations. Unlike earlier bailouts of Indonesia and Russia when the IMF stepped only when economic situations have become dire, IMF officials contend that this package will provide enough time for the newly re-elected president of Brazil, Fernando Henrique Cardoso, to implement economic reforms and shore up the Brazilian currency, the real. Cardoso has already proposed a politically-difficult 20 percent cut in government spending, including cuts in once-sacred public employee pension plans. But critics say the IMF's strategy of government austerity and propping up overvalued currencies actually deepens the economic plight of troubled countries, causes unnecessary suffering amongst the poor and may weaken the political leadership. Others argue that only way to stabilize the situation is to re-establish stronger controls over the trillions of dollars in capital that flow across international borders. Will the new plan save the Brazilian economy? Is it too little, too late? Is the IMF's approach to the problem correct, or should it switch strategies? Will the Brazilian bailout cause unnecessary suffering? Was the inclusion of U.S. tax dollars in the deal appropriate? Your questions are answered by Mary Bush, a financial advisor who represented the U.S. on the IMF's executive board during the Reagan Administration, and Steven Radelet, Director of Macroeconomics Program at the Harvard Institute for International Development.

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