Back from the Brink

Brazil has the dubious distinction of being the largest international debtor in the developing world; the country's public institutions and private businesses owe an estimated $87 billion to foreign creditors, $67 billion of it to banks. As TIME's Board of Economists met last week, some were fearful that the cash-strapped South American nation would default, an event that could shatter the increasingly fragile international banking system. The possibility sent world financial leaders scrambling to prevent a crisis.

Banks lend to Brazil, as to any borrower, out of confidence that they will be repaid. When that faith erodes, for whatever reason, some...