The word ‘Encilhamento’ originated from horse racing where bets were placed which was popular in Brazil during the 19^th century. The word in ‘Encilhamento’ in Encilhamento crisis refers to the buying of shares and stocks. The Encilhamento crisis took place during the time Brazil had become a Republic and the slavery was abolished in 1888. Therefore, the country had many sets of challenges to deal with along with economic crisis that was looming.

THE CIRCUMSTANCES THAT PUSHED TOWARDS THE CRISIS

With the abolition of slavery and influx of immigrants, the matter of wages became another major concern as now the new ‘people’ would be salaried. The Rio De Janeiro Stock Market was booming and the new banking system was introduced by Viscount Ouro Petro, the last minister of Empire of Brazil. The provided aid to farms and people in agricultural sectors who were affected by the country’s economic problems.

The economic policy was later followed by Rui Barbosa, the finance minister under Marshal Deodora da Fonseca, the First President of Brazil after the country becoming a Republic. The policy was focused on boosting the country’s economic growth and was a step towards modernization. Brazil’s major bank began issuing paper money and credit to the businesses.

The changes in the law decreased the barrier to the market, allowing more companies to enter the market and take free credit from the bank. It allowed fake companies to be created and many business who took advantage of free credit to make huge profits. The companies that were listed on the stock exchange more than doubled in few years. But the long due impact that many experts warned about came soon.

THE BUBBLE AND THE FALL

Encilhamento crisis is often seen in both negative and positive manner. On the brighter side, it helped Brazil move towards modernization and on the other hand, the negative effect was seen soon once the inflation rose, exchange rate depreciated, unemployment rose and there was a sudden increase in shell companies.

The Baring crisis of 1890 fuelled the financial crisis in many other countries like Argentina and Uruguay along with Brazil. In Brazil, the panic rose and many companies were shut down. The banks and the government came under the pressure which resulted in Rui Barbosa resignation in January 1891 and merger of many major banks.

Later in 1891, Marshal Deodora da Fonseca, the first president of Brazil also had to take accountability and resign from his post.

Citation

Shikida, Claudio D. and Cortes, Gustavo. (September 09, 2013). Early Financial Crises in an Infant Republic: An Empirical Analysis of the Encilhamento in Brazil (1889-1906).

Franco, G. Encilhamento. Historical Atlas of Brazil.

Filomeno, F. A. (April 2010). The Baring crisis and the Encilhamento crisis within the framework of the capitalist world economy.SciELO Brazil.