Thesamba effect is a nickname for thefinancial crisis in Brazil in 1999 where there was a 35% drop in the value of theBrazilian real. The effect was caused by the1997 Asian financial crisis, which ledBrazil to increaseinterest rates and to institute spending cuts and tax increases in an attempt to maintain the value of its currency.[1] These measures failed to produce the intended effect, and theBrazilian governmentfloated its currency against theUS dollar, which led to the dramatic decrease in its value.[1] The devaluation also precipitated fears that the ongoing economic crisis in Asia would spread toSouth America, as many South American countries were heavily dependent on industrial exports from Brazil.[1] These fears resulted in the Brazilian government adopting anausterity program in order to receive a $41.5 billion aid package from theInternational Monetary Fund and other world lenders.[1]
By the end of 1999, the effect was waning, and theBrazilian economy 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.[1]
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