Alternate History

1958 South American financial crisis (Napoleon's World)

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The 1958 South American financial crisis was a major global economic panic that originated and South America and soon spread globally, causing recessions in the United States, Mexico, Alaska, France, Oceania and most of Asia (except for Japan, which had little exposure to South American businesses and banks). Caused by the 1950's South American boom, in which the continent saw a period of exponential and rapid industrialization and diversification, it was an example of economic overheating, and the inflation of the currency eventually caused a correction after the withdrawal of several prominent American investors from Brazilian holdings in October of 1958, causing a broad panic that resulted in a bank run, a rapid devaluation of the Brazilian real and the contagion spread quickly to Argentina, Chile and Paraguay. Chile, being an export economy extremely reliant on the inflated value of its currency against the dollar, was the hardest hit. Many cite Brazil's withdrawal from the League of South American Countries (LPS) in 1956 as exacerbating the problem.

Due to the sudden and broad devaluation of several South American currencies and the collapses of their financial systems, global investors quickly pulled money and assets out, further crippling the local economies and resulting in recessions in the native countries. Numerous banks defaulted on loans, interest rates were raised by South American governments to protect remaining investors and credit ratings plummeted, creating what one commenter referred to as a "death spiral."

The event is referred to as the "South American" crisis due to its widespread effect on four of the continent's countries, but it did not have severe effects in Colombia or Peru, due to the self-sufficiency of the former and the low industrialization of the latter. In fact, without trading rivals, Colombia saw a boost in investment following the crisis, emerging as the safest Latin American economy for foreign companies to come to and seeing a rapid recovery after a brief recession in 1958-59. In Chile, however, the crash contributed directly to the Communist takeover in 1965 due to public outrage over the powerful wealthy interests who hoarded their money amidst the ensuing depression, and in Argentina and Brazil powerful military governments soon took control in the early 1970's.

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