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Fears about Brazil fuel default debate

After Argentina, emerging-market professionals are facing up to the prospect of a default in Brazil. The effects could be so disastrous that collective action clauses in bond documentation are winning more and more favour. But broader IMF measures look necessary if such restructuring mechanisms are to work effectively.

       
Rio de Janeiro: foreign investment may
soon dry up

Emerging-market professionals in both the private and official sectors are losing a lot of sleep about the prospect of a Brazilian default. They're justifiably worried that such an event would mean the end of emerging markets as an asset class, at least for countries with less than an investment-grade credit rating. That would not only mean thousands of Wall Streeters losing their jobs but could have much more profound consequences for the wider world. If flows to developing countries dry up, the prospects for sustainable growth in entire continents such as south America will evaporate.

To be sure, the emerging markets have heard such forecasts more than once in the past few years, and each time they have emerged intact.

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