January 20, 1999

In a word, Brazil's devaluation of the real is disappointing. We believed Brazil President Fernando Henrique Cardoso would defend his legacy the real plan with every instrument available to him. Last week, that legacy came to an end, and Brazil now has a long road ahead of it to economic and monetary stability. Like Argentina's stabilization plan under Menem, the real plan had brought Brazil's domestic hyperinflation to an abrupt halt. The parallels with Menem and Argentina suggested Brazil wouldn't devalue. Unfortunately, the Brazilian experience, instead of mimicking Argentina, resembles more closely the Mexican peso devaluation of a few years back. (Remember Mexico also devalued shortly after the election of a new president a president from the same party that had been in power since 1910).

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