October Slide

The world teeters on the brink of global recession yet again. Growth is faltering in the world’s two largest economies—the European Union and the U.S.—and continues to evade the third, Japan.

The most recent worry centers on Latin America. Previous to the East Asian financial meltdown of the 1990s, it was Latin America that most threatened global economic stability. Now the wheel has turned, and once again it is Latino economies which scare stock traders around the world.

In a sign reflecting this fear, the imf announced in August that it was granting a $15 billion emergency line of credit to Brazil. At the same time, it prepared to speed up a $1.2 billion loan installment for Argentina.

It was not so much these actions that set off alarm bells as it was the speed with which these announcements came. This was a reaction to Brazil’s currency hitting historic lows coupled with emerging fears that Argentina would default on its $128 billion debt and also devalue its currency, the peso.

The prospect of the Asian scenario repeating itself in Latin America is the new worry for global economists at the very time when those main engines of growth—the EU, the U.S. and Japan—are in trouble.

In a seeming head-in-the-sand approach to the problem, the German head of the imf praised Brazilian and Argentinean efforts to bring their economies back on track. His praise belies the structural weakness of these largest of the Latino economies.

Even as observers watched for a positive turnaround following the imf announcements, a former official of the federation, Morris Goldstein, observed, “It’s an indication that [imf and U.S. officials] are very worried about contagion, worried about global risks and worried about weakness” (Washington Post, Aug. 4).

The onset of the northern autumn is traditionally a signal for a stock market slide. The global economy enters this fall very wobbly, facing the full implementation of the weak euro in January.

The next few months will prove crucial to the survival of the world’s economic structure in its present form.