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Brazil And South Africa: Could Turmoil Lead To Default?

Brazil And South Africa: Could Turmoil Lead To Default? by Knowledge@Wharton

Franklin Allen on the risks facing Brazil and South Africa

The economic slowdown in China has taken an economic toll on supplier countries – particularly emerging markets – that provide raw materials and other inputs. Some analysts say it is a key reason why investors are now worried that Brazil and South Africa could default on loans. But Wharton finance professor Franklin Allen says he does not expect either country to default. And while the slowdown in China has certainly led to weaker demand for such commodity exporters, “I think particularly Brazil — but also to some extent South Africa — has many additional problems” – notably, corruption.

In this Knowledge in 5 interview – the second in a three-part series (see part one here) — Allen points out that currency and credit markets will continue to provide the best indicators of the economic health for the two countries. More generally, he also sees a “significant, [although] maybe not a major, probability” of a global financial crisis of some kind as a result the slowing global economy and adjustment problems that may crop up when the U.S. Federal reserve starts...