US Financial Crisis: Decoupling and the Brazilian Economy



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Code : ECC0036

Year :
2009

Industry : Banking, Insurance and Financial Services

Region : Brazil

Teaching Note: Available

Structured Assignment : Available

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Abstract: This case study is aimed at an analysis on how various sectors of Brazil were affected due to the US financial crisis and also to validate the relevance of decoupling theory for the Brazilian economy. This case also helps debate on how a singular unintended incidence the US financial crisis in this case could put the recovery efforts of an economy in jeopardy.

Brazil, some argue, was blessed in disguise when it was tested with perennial economic crisis throughout the 1990s and global downturn following the September 11 terrorist attacks. The economy not only emerged more resilient, but also grew self-sustainable. 2008 Statistics tell the whole story imports equal to 9% of the Brazilian GDP and exports about 12%. Just when economists started believing that this country is decoupled from the developments in the US economy, the US financial crisis (2008) struck Brazil off-guard. The global credit dried up, unemployment increased, international investor confidence dwindled and above all, Brazilian real shrunk against the US dollar. Brazilian companies have bet huge amounts on currency derivatives, since 2003, with the assumption that the real would strengthen against the US dollar. What should companies do firstly to avoid an impending bankruptcy and stay afloat in the medium term? What should be government's response?


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Pedagogical Objectives:

  • To understand the impact of the US financial crisis on an emerging economy like Brazil
  • To analyse whether decoupling theory holds good in today's financially-integrated world
  • To highlight the challenges Brazil faces as a result of this crisis.

    Keywords : US Financial Crisis, Subprime Mortgage, Currency Derivatives, Decoupling Theory, Brazilian Economy, Brazilian real, Sadia, Aracruz, Grupo Votorantin, Credit Crunch

    Contents :
    Impact of the US Financial Crisis on Brazil's Currency Derivatives
    Impact of the US Crisis on the Brazilian Economy
    Will Brazil Decouple?
    Measures Taken by Brazil


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