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. Last Updated: 07/27/2016

Russia, Brazil Crises Not Surprising




DAVOS, Switzerland -- As financial markets are rocked by economic crises in Russia and Brazil, leading economists are telling world financial institutions they warned them the trouble was coming.


A year ago, as the world was trying to absorb the impact of Asia's economic crisis, a panel of top economists and financiers predicted the turmoil would trigger aftershocks in the most vulnerable emerging markets.


"The short list is Russia and Brazil," warned U.S. economist Rudi Dornbusch at last year's annual meeting of the World Economic Forum, which attracts hundreds of international business and political elite to this ski resort high in the Swiss Alps.


And as Dornbusch and other panelists had predicted, the Russian ruble teetered and eventually collapsed in August, while Brazil was finally forced to devalue its currency, the real, a little more than two weeks ago.


But those predictions only went some way toward restoring the credibility of financial pundits who had failed to predict the Asian crisis at the forum's meeting in 1997.


And even billionaire financier George Soros had to admit that when it came to Russia's crisis, his crystal ball had clouded over and his hedge fund lost money.


As for this year's outlook, most of the talk in Davos focused on worries about further global currency upsets and economic problems as movers and shakers debated how best to clean up the fallout from recent crises.


In session after session, the world's top financial heavyweights accused the International Monetary Fund of having not done enough to prevent the economic crises that hit Russia and Brazil.


"That we have a crisis today shows that something really is broken in the financial architecture," Soros said.


"Having seen what happened in Mexico [during its 1994-95 crisis], it does boggle the mind."


To be fair, the IMF did try to ward off Brazil's current crisis by arranging a $41.5 billion credit package for Latin America's linchpin economy last November.


But Soros and other critics argued that the IMF-endorsed policy of trying to use interest rates to shore up Brazil's currency was counterproductive.


"Effectively, anything that could be done wrong, has been done wrong," Soros said, although he acknowledged that Brazil has made most of the necessary fiscal reforms for a recovery.


"As far as our involvement in Russia, it has been rather unrewarding. We've suffered major losses," Soros said, though he added that Russia's economic situation could be turned around once political uncertainties are cleared up there.