Caipirinha crisis

The Caipirinha crisis was the crisis that arose in Brazil at the end of 1999 as a result of the flight of mass capital and the subsequent devaluation of the Brazilian real.

To understand the crisis in Brazil of the 80s and 90s, we must highlight the changes that have emerged in these two decades.

  • On the one hand, the introduction and changes of various currencies, very close to each other, that created distrust among international agents , since the cruzeiro was replaced by the crusader and finally by the real one that arrives to this day. The motivation for the introduction of the new currencies was given by the strong inflation and devaluation of the currency over the years.
  • However, the caipirinha crisis, named for being the national drink of Brazil,  originated from the rebuilding of others that emerged beforeand of equal importance for the South American country. On the one hand, the capital flight in Mexico, which had led to the Tequila crisis, and on the other the decrease in prices of emerging countries that had caused strong public deficits in those countries whose economy was maintained based on sales in the Foreign raw materials, such as Russia.

Historical background

In the case of Brazil, many investors from Russia and surrounding countries arrived in a country that was beginning to grow, to open up to the world after a dictatorship and numerous internal economic changes and reforms, which made inflation rise considerably.

In addition, various speculative attacks led the government to need the help of the IMF with a loan of 40,000 million dollars , which together with the impossibility of keeping the Brazilian real within the optimal contribution bands, led to a strong devaluation of the ruble of 10 %.

After this decision, investors and speculators withdrew foreign capital en masse and plunged the country into a deficit balance , with a greater public deficit and strong imbalances, needing IMF help again.

With all this, Brazil was able to reorder its economic system and grow at high rates that reach today.

by Abdullah Sam
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