The samba effect is a nickname for the

financial crisis A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with Bank run#Systemic banki ...

in Brazil in 1999 where there was a 35% drop in the value of the

Brazilian real The Brazilian real (plural, pl. '; currency symbol, sign: R$; ISO 4217, code: BRL) is the official currency of Brazil. It is subdivided into 100 centavos. The Central Bank of Brazil is the central bank and the issuing authority. The real repl ...

. The effect was caused by the

1997 Asian financial crisis The 1997 Asian financial crisis gripped much of East Asia, East and Southeast Asia during the late 1990s. The crisis began in Thailand in July 1997 before spreading to several other countries with a ripple effect, raising fears of a worldwide eco ...

, which led

Brazil Brazil, officially the Federative Republic of Brazil, is the largest country in South America. It is the world's List of countries and dependencies by area, fifth-largest country by area and the List of countries and dependencies by population ...

to increase

interest rates An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

and to institute spending cuts and tax increases in an attempt to maintain the value of its currency."Bearing the Burden: The Impact of Global Financial Crisis on Workers and Alternative Agendas for the IMF and Other Institutions"
Institute for Policy Studies, April 2000. These measures failed to produce the intended effect, and the

Brazilian government The politics of Brazil take place in a framework of a federal presidential representative democratic republic, whereby the President is both head of state and head of government, and of a multi-party system. The political and administrative ...

floated its currency against the

US dollar The United States dollar (symbol: $; currency code: USD) is the official currency of the United States and several other countries. The Coinage Act of 1792 introduced the U.S. dollar at par with the Spanish silver dollar, divided it int ...

, 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 is a continent entirely in the Western Hemisphere and mostly in the Southern Hemisphere, with a considerably smaller portion in the Northern Hemisphere. It can also be described as the southern Subregion#Americas, subregion o ...

, as many South American countries were heavily dependent on industrial exports from Brazil. These fears resulted in the Brazilian government adopting an

austerity In economic policy, austerity is a set of Political economy, political-economic policies that aim to reduce government budget deficits through Government spending, spending cuts, tax increases, or a combination of both. There are three prim ...

program in order to receive a $41.5 billion aid package from the

International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution funded by 191 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of las ...

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 as it was during the late 1980s and early 1990s.

Notes

{{Financial crises 1999 in Brazil 1999 in economic history Economic crises in Brazil

See also

Notes