The samba effect is a nick name 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 banking panics, and man ...

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

Brazilian real The Brazilian real ( pl. '; sign: R$; 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 replaced the cruzeiro real in 1994 ...

. The effect was caused by the 1997 Asian financial crisis, which led

Brazil Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...

to increase interest rates 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 o ...

floated its currency against the

US dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...

, 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 relatively small portion in the Northern Hemisphere at the northern tip of the continent. It can also be described as the sout ...

, as many South American countries were heavily dependent on industrial exports from Brazil. These fears resulted in the Brazilian government adopting an austerity 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, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...

and other world lenders. By the end of 1999, the effect was waning, and the

Brazilian economy The economy of Brazil is historically the largest in Latin America and the Southern Hemisphere in nominal terms. The Brazilian economy is the third largest in the Americas. The economy is a middle income developing mixed economy. In 2022, acc ...

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 economics Economic crises in Brazil

See also

Notes