FINANCIAL BAILOUT - TO BIG TO FAIL

A Bailout 

is a colloquial pejorative term for giving a loan to a company or country which faces serious financial difficulty or bankruptcy. It may also be used to allow a failing entity to fail gracefully without spreading contagion.The term is maritime in origin being the act of removing water from a sinking vessel using a smaller bucket.

Overview

A bailout could be done for mere profit, as when a predatory investor resurrects a floundering company by buying its shares at fire-sale prices; for social improvement, as when, hypothetically speaking, a wealthy philanthropist reinvents an unprofitable fast food company into a non-profit food distribution network; or the bailout of a company might be seen as a necessity in order to prevent greater, socioeconomic failures: 

For example, the US government assumes transportation to be the backbone of America's general economic fluency, which maintains the nation's geopolitical power. As such, it is the policy of the US government to protect the biggest American companies responsible for transportation (airliners, petrol companies, etc.) from failure through subsidies and low-interest loans. These companies, among others, are deemed "too big to fail" because their goods and services are considered by the government to be constant universal necessities in maintaining the nation's welfare and often, indirectly, its security.

Emergency-type government bailouts can be controversial. Debates raged in 2008 over if and how to bail out the failing auto industry in the United States. Those against it, like pro-free market radio personality Hugh Hewitt, saw this bailout as an unacceptable passing-of-the-buck to taxpayers. He denounced any bailout for the Big Three, arguing that mismanagement caused the companies to fail, and they now deserve to be dismantled organically by the free-market forces so that entrepreneurs may arise from the ashes; that the bailout signals lower business standards for giant companies by incentivizing risk, creating moral hazard through the assurance of safety nets (that others will pay for) that ought not be, but unfortunately are, considered in business equations; and that a bailout promotes centralized bureaucracy by allowing government powers to choose the terms of the bailout. 

Others, such as economist Jeffrey Sachs have characterized this particular bailout as a necessary evil and have argued that the probable incompetence in management of the car companies is an insufficient reason to let them fail completely and risk disturbing the (current) delicate economic state of the United States, since up to three million jobs rest on the solvency of the Big Three and things are bleak enough as it is. In any case, the bones of contention here can be generalized to represent the issues at large, namely the virtues of private enterprise versus those of central planning, and the dangers of a free market's volatility versus the dangers of socialist bureaucracy. Furthermore, government bailouts are criticized as corporate welfare, which encourages corporate irresponsibility.  

Governments around the world have bailed out their nations' businesses with some frequency since the early 20th century. In general, the needs of the entity/entities bailed out are subordinate to the needs of the state.

Themes

From the many bailouts over the course of the 20th century, certain principles and lessons have emerged that are consistent:

Central banks provide loans to help the system cope with liquidity concerns, where banks are unable or unwilling to provide loans to businesses or individuals. 

Lending into illiquidity, but not insolvency, was articulated at least as early as 1873, in Lombard Street, A Description of the Money Market, by Walter Bagehot. 

1. Let insolvent institutions (those with insufficient funds to pay their short-term obligations or those with more debt than assets) fail in an orderly way. 
2. Understand the true financial position of key financial institutions, through audits or other means. Ensure the extent of losses and quality of assets are known and reported by the institutions.
3. Banks that are deemed healthy enough (or important enough) to survive require recapitalization, which involves the government providing funds to the bank in exchange for preferred stock, which receives a cash dividend over time.
4. If taking over an institution due to insolvency, take effective control through the board or new management, cancel the common stock equity (existing shareholders lose their investment) but protect the debt holders and suppliers.
5. Government should take an ownership (equity or stock) interest to the extent taxpayer assistance is provided, so that taxpayers can benefit later. 
6. In other words, the government becomes the owner and can later obtain funds by issuing new common stockshares to the public when the nationalized institution is later privatized.
7. A special government entity is created to administer the program, such as the Resolution Trust Corporation.
8. Prohibit dividend payments to ensure taxpayer money are used for loans and strengthening the bank, rather than payments to investors.
9. Interest rate cuts to lower lending rates and stimulate the economy.

Reasons against bailouts

• Signals lower business standards for giant companies by incentivizing risk
• Creates moral hazard through the assurance of safety nets
• Promotes centralized bureaucracy by allowing government powers to choose the terms of the bailout
• Instills a corporatist style of government in which businesses use the state's power to forcibly extract money from taxpayers.

Paul Volcker, chairman of Barack Obama's White House Economic Recovery Advisory Board, said that bailouts create moral hazard: they signal to the firms that they can take reckless risks, and if the risks are realized, taxpayers pay the losses, also in the future."The danger is the spread of moral hazard could make the next crisis much bigger".

On November 24, 2008, American Republican Congressman Ron Paul (R-TX) wrote, 

"In bailing out failing companies, they are confiscating money from productive members of the economy and giving it to failing ones. By sustaining companies with obsolete or unsustainable business models, the government prevents their resources from being liquidated and made available to other companies that can put them to better, more productive use. An essential element of a healthy free market, is that both success and failure must be permitted to happen when they are earned. But instead with a bailout, the rewards are reversed – the proceeds from successful entities are given to failing ones. How this is supposed to be good for our economy is beyond me.... It won’t work. It can’t work... It is obvious to most Americans that we need to reject corporate cronyism, and allow the natural regulations and incentives of the free market to pick the winners and losers in our economy, not the whims of bureaucrats and politicians."

Costs

In 2000, World Bank reported that banking bailouts cost an average of 12.8% of GDP. The report stated:

Governments and, thus ultimately taxpayers, have largely shouldered the direct costs of banking system collapses. These costs have been large: in our sample of 40 countries governments spent on average 12.8 percent of national GDP to clean up their financial systems.

Cases

• 1970 - Penn Central Railroad
• 1971 - Lockheed Corporation
• 1980 - Chrysler Corporation
• 1984 - Continental Illinois
• 1991 - Executive Life Insurance Company, by states assessing other insurers
• 1998 - Long-Term Capital Management, by banks and investment houses, not government (see LTCM page).
• 2003 - Parmalat
• 2008 - The Bear Stearns Companies, Inc.
• 2008 - Fannie Mae and Freddie Mac
• 2008 - The Goldman Sachs Group, Inc. bailed out by the federal government and Berkshire Hathaway
• 2008 - Morgan Stanley bailed out by The Bank of Tokyo-Mitsubishi UFJ
• 2008-2009 - American International Group, Inc. multiple times
• 2008 - Emergency Economic Stabilization Act of 2008
• 2008 - 2008 United Kingdom bank rescue package
• 2008 - Citigroup Inc.
• 2008 - General Motors Corporation and Chrysler LLC- though not technically a bailout, a bridge loan was given to the auto manufacturers by the U.S. government, this is referred to by most as a bailout
• 2009 - Bank of America to help it absorb known losses that were much greater than revealed to shareholders incurred by its buyout of Merrill Lynch
• 2009 - CIT Group $3 billion by its bondholders in a failed attempt to avoid a bankruptcy. This bailout only delayed the bankruptcy.
• 2009 - Dubai and Dubai World bailed out by Abu Dhabi

Irish banking rescue

Main article: 2008–2011 Irish banking crisis

Irish banks suffered substantial share price falls due to a lack of liquidity in finance available to them on the international financial markets. Currently[when?], solvency is being revealed as the most serious concern as doubtful loans to property developers, still undeclared in bad debt provisions, come into focus.

Swedish banking rescue

During 1991–1992, a housing bubble in Sweden deflated, resulting in a severe credit crunch and widespread bank insolvency. The causes were similar to those of the subprime mortgage crisis of 2007–2008. In response, the government took the following actions: Sweden's government assumed bad bank debts, but banks had to write down losses and issue an ownership interest (common stock) to the government. Shareholders were typically wiped out, but bondholders were protected. When distressed assets were later sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies in public offerings. The government announced the state would guarantee all bank deposits and creditors of the nation’s 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral. This bailout initially cost about 4% of Sweden's GDP, later lowered to between 0–2% of GDP depending on various assumptions due to the value of stock later sold when the nationalized banks were privatized.

U.S. Savings and Loan Crisis

In response to widespread bank insolvency as a result of the Savings and Loan crisis, the United States established the Resolution Trust Corporation (RTC) in 1989.

US TARP and related programs

In 2008-9 the U.S. Treasury and the Federal Reserve System bailed out numerous very large banks and insurance companies, as well as General Motors and Chrysler. Congress at the urgent request of President George W. Bush passed the Troubled Asset Relief Program or "TARP", funded at $700 billion. The banks have largely repaid the money and the net cost of TARP may eventually be in the range of $30 billion. The bailout of Fannie Mae and Freddy Mac, which insure mortgages, totals $135 billion by October 2010, and could be much higher, depending on the future of the housing and mortgage markets.The issue of federal bailouts of the banks and big corporations became a major issue of the 2010 elections, with the Tea Party movement in particular focusing its attack on bailouts.

See also

     Specific:

• Automotive industry crisis of 2008–2009
• Brown Bailout
• Crédit Lyonnais
• Debtor-in-possession financing
• Emergency Economic Stabilization Act of 2008
• Financial crisis of 2007–2012
• Late 2000s recession
• Subprime mortgage crisis
• Lemon socialism

General:

• Bankruptcy
• Bubble (economics)
• Cash flow
• Lender of last resort
• Financial crisis
• Nationalization
• Recapitalization
• Stock market crash

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Calling Oliver Stone: An Indonesian bailout conspiracy? HERE  

November 10, 1997 [ Printer-friendly version ]

In the same week that the Clinton administration announced a $40 billion bailout of the Indonesian government, I was in Washington taping "Jeopardy" with Wolf Blitzer and Oliver Stone. (Stone won, but wait till you hear my second-buzzer theory.)Perhaps I caught a conspiracy bug from the auteur of "JFK" and "Nixon." But as details of the Indonesian bailout emerged (it included, on top of the United States' hefty contribution to the International Monetary Fund, a direct $3 billion commitment from American taxpayers), I found myself hearing almost hourly from a little voice that I came to recognize as my own inner Oliver Stone.The little Oliver sitting on my shoulder kept telling me that there was some connection between the choice of Indonesia's rapacious ruling dynasty, the Suhartos, as recipients of America's largesse and the Clinton administration's own Indonesia link: the Riady family and their bagman John Huang.

Here's the web the way Oliver Stone might spin it: 

The Indonesian Riadys control the Lippo Group, a multibillion-dollar conglomerate with investments throughout Asia. Lippo, which does a substantial amount of business with China and Vietnam, stands to lose millions should China's most-favored-nation trading status be revoked. And in 1994, Lippo gained millions when America's two-decade-long trade embargo with Vietnam was lifted by Clinton.The Riadys, with a little help from Lippo's onetime head of U.S. operations John Huang, gave $100,000 for Clinton's big inaugural bash in 1993 and at least $1,250,000 -- $450,000 of that through Indonesian landscaper Arief Wiriadinata -- to the Democrats during the 1996 election cycle. They also paid longtime Clinton hand Webb Hubbell $100,000 when he was facing criminal prosecution. Well, one good bailout deserves another. My on-board Oliver (was he a product of my id or my superego?) whispered in my ear that Suharto owed his place at the top of the international welfare rolls to the good offices of the Riadys. They faithfully backed Clinton all the way back to Arkansas, and they always got what they wanted: U.S. support for a $2 billion project in Fujian, China, an end to U.S. trade restrictions on Vietnam, and the delinking of trade with China from its human rights violations. When the United States bailed out Mexico, there was vigorous public debate, with protestations that Mexico was unique and the whopping loan guarantees a once-in-a-lifetime international outreach. When Indonesia's time came, if you blinked, you could easily have missed the announcement of the bailout. No one even bothered to explain what was unique about Indonesia -- other than the Riadys' close ties to the Clinton administration, that is. If you were paying close attention, you would have heard IMF managing director Michel Camdessus say that 

"The bold policy actions now being undertaken by the authorities should not only help restore confidence in the Indonesian economy but also do much to help calm the turmoil that has been sweeping the region since July."

Left unanswered -- and even unasked -- is the most important question: 

What is the correlation between the concentration of power in the hands of the 76-year-old dictator and his clique and the turmoil the bailout is intended to correct? 

It's obvious to anyone with a brain the size of a LeSuer pea that what needs to change in Indonesia are the people in charge. And that is the one thing that the bailout ensures will not happen. Propping up the corrupt regime that caused many of the problems in the first place is a cure that favors the disease. A few years ago, the Asian economic tigers, Indonesia among them, were fond of preaching to the West their own perverse form of crony capitalism. "Asian family values" were cited as the mystical well-spring of these countries' remarkable successes.

In fact, Indonesian family values have meant astonishing levels of over-employment for President Suharto's children. 

• His daughter "Tutut" has been employed by both Lucent Technologies and General Dynamics. 
• Another daughter, "Titik," has drawn paychecks from General Electric, Edison Mission Energy and Merrill Lynch. 
• His son Bambang has advised Hyundai, Deutsche Telecom, Hyatt Hotels and the massive Chandra Asia petrochemical monopoly, and has lorded it over the troubled Bank Andromeda -- one of the many ill-regulated financial institutions in a country where opening a bank is no more difficult than opening a checking account in Van Nuys.

If President Clinton and Treasury Secretary Rubin are so desperate to give away $3 billion of taxpayers' money, there are plenty of worthy causes here at home, starting with the millions of children trapped in dysfunctional schools in our inner cities.It's too late for that. But would it be too much to ask that in exchange for our $3 billion, Suharto at least stops guaranteeing full over-employment for his gluttonous kids? When my nagging internal Oliver Stone grants me a moment's peace for sober reflection, a vast conspiracy linking Suharto and Clinton via the Riadys and John Huang seems no more believable than "JFK." Nevertheless, the germ of plausibility is definitely there, and pending some further clarification from the White House about why America is rubber-stamping approval of a multibillion-dollar Thanksgiving turkey for Southeast Asia's notorious robber barons, I'm putting the Indonesian bailout affair in my own personal X-file marked "active."

US and IMF Indonesian bailout unethical

By Diane Farsetta and Ben Terrall

(A version of this article was printed in the Madison Badger-Herald and circulated nationally by USA Today.)

Prominent in the news recently are reports of the Asian economic crisis, and of US and International Monetary Fund (IMF) efforts to aid the afflicted countries. Among these reeling, once proud Asian "tigers" is Indonesia, the fourth most populous country in the world. Perhaps for no other country has the financial upheaval come at a more critical time, as the aging dictator Suharto prepares to begin his last term as president with no designated successor, in a country where the transfer of power has never been peaceful.

Suharto rose to power in 1965 

in a bloodbath that left up to a million people dead. Since then, his regime has consolidated both political and economic power in the hands of his relatives and friends, leaving the majority of Indonesians near or below internationally recognized poverty levels. The Suharto government has also been characterized by severe violations of the fundamental rights of both the citizens and the neighbors of Indonesia.

The 1975 

Invasion and subsequent ongoing occupation of the country of East Timor has resulted in the death of over 200,000 people, according to Amnesty International estimates - that is, one-third of the island’s population. Although the Indonesian occupation of East Timor has been condemned by 10 United Nations resolutions, successive US administrations have continued to place the "stability" offered by the Suharto regime (and its willingness to share profits from natural resources and cheap labor) above the democratic aspirations of the Indonesian and East Timorese people.The brutal and repressive nature of the Suharto government, its corruption, cronyism, and obstruction of human, political, and workers’ rights underlies the current financial crisis. While those critical of Suharto are often imprisoned, the widespread hardship caused by the drop in the value of Indonesian currency led Muslim leader Amien Rais to state recently that, 

"The only way to turn the situation around is to break the status quo. And the only way to do that is to replace Suharto ... people will no longer put up with another five years of Suharto repressing them."

Since the US and IMF $40 billion bailout of Indonesia does not address these serious problems with any human rights, labor or environmental criteria, it will be at best a temporary fix. Additionally, as Representative Bernie Sanders (D-VT) pointed out to the House Banking and Financial Services Committee, under the Sanders-Frank amendment, 

"The United States government cannot support any IMF or World Bank loans to Indonesia unless the loan proposal guarantees internationally recognized worker rights ... plain and simple, it is against the law for the United States and the Secretary of the Treasury to support this bailout."

The destabilization of Indonesian society from both the financial crisis and rumors of Suharto being seriously ill increase the possibility of a military crackdown similar to the tragic events of 1965. On January 6, the commander of the Indonesian armed forces announced, after meeting with Suharto, that the military was prepared to "strike down" any group daring to take a stand against the regime. He bragged that Bakin, the Indonesian equivalent of the CIA, is closely monitoring all dissidents. The repression in occupied East Timor has also worsened dramatically since the awarding of the 1996 Nobel Peace Prize to East Timorese leaders Bishop Carlos Ximenes Belo and José Ramos-Horta.

Meanwhile, on January. 11, US Secretary of Defense William Cohen said, 

"I am not going to give [Suharto] any guidance in terms of what he should or should not do in maintaining control of his own country." Cohen also pledged to restore funds for military training aid to Indonesia and expand joint training with the Indonesian military.

Should this be the position of the US, the self-proclaimed world champion of democracy?

The East Timor Action Network/US, and Dr. George J. Aditjondro, an Indonesian academic dissident in self-imposed exile, have recently condemned the IMF bailout plan and called for the US government to stop all military support to Indonesia and support the pro-democracy movement in Indonesia. Support for free and open societies in both Indonesia and East Timor is truly the only way the US can help create a lasting, peaceful solution to the current crisis. With support from the international community, the dangerous upheaval could become an opportunity for a transition from murderous military dictatorship to freedom and self-determination. 

The United States should be on the side of democracy, not corrupt oligarchy

Note: Unfortunately, opposition to the IMF bailout in Congress has not yet become strong enough to condition money to Indonesia on human rights. Please refer to the action alert for recommended action.

Tell Congress: No Bailouts for the Suharto Dictatorship!

Indonesian Mob Wants Blood After Treasury Secretary Spends A Fortune Bailing Out Banks

Gus Lubin | Mar. 3, 2010, 7:50 AM , Read more: HERE

Tensions are high in Indonesia as it appeared that a months-long investigation into the $700 million bailout of Bank Century will end without prosecution of the country's finance minister and vice president. Many legislators saw the ouster of Sri Mulyani Indrawati and Boediono as essential to reform that could lead to a sovereign debt upgrade, according to the FT. But the real anger is on the streets of Jakarta. Thousands of students, labor members, and other mass organizations rioted outside the House of Representatives yesterday and today. These are the people that ended up paying for the bailout, and the same ones that are rioting in Greece and California.Finance Minister Indrawati has already faced more outrage than her equivalents around the world, however, more than Giorgos Papaconstantinou and far more than Tim Geithner.

See The Jakarta Bailout Mob >

For the next country to break out in riots, look to Dublin. As Ireland Finance Minister Brian Lenihan considers putting more money into troubled bank AIB, political leaders have warned that such actions would result in "revolution in the streets," according to the Irish Independent.

Panel Divided on Bank Century Bailout

By JOKO HARIYANTO, REUBEN CARDER And I MADE SENTANA

JAKARTA—An Indonesian parliamentary committee Tuesday failed to arrive at a consensus on a high-profile inquiry into a $700 million bank bailout, adding to recent political tensions in Southeast Asia's largest economy.  Antigovernment protesters, angry over the bailout, hurled rocks at police, who responded with water cannons and tear gas outside Indonesia's national parliament. Emotions also ran high inside the parliament, and a scuffle broke out between lawmakers debating how to handle the committee's conclusions. The committee was wrapping up a months-long investigation into the government's 2008 rescue of PT Bank Century, an Indonesian bank that nearly collapsed at the height of the global financial crisis. Critics of the bailout have argued it was expensive, unnecessary and possibly illegal, and have called for the resignation of the two officials who oversaw the bailout, Finance Minister Sri Mulyani Indrawati and Vice President Boediono, who was central bank governor at the time. The two officials, widely credited internationally with pushing overhauls that strengthened Indonesia's economy in recent years, have argued the bailout was in the best interests of the country. The committee released two apparently contradictory findings and gave little clear indication of how the investigation will proceed. One finding, backed mainly by members of the inquiry committee allied with the party of President Susilo Bambang Yudhoyono, said the bailout was necessary to avoid placing the country's financial system at risk, committee spokesman Idrus Marham said in a televised hearing. Still, this bloc also found indications that the bailout process may have violated "the prevailing mechanism and regulations," and suggested further investigation to substantiate the bloc's views. Another recommendation, supported by a majority of the committee's members, alleged "irregularities" and abuse of power, demanding its findings be followed by further examination by police, state prosecutors and an anticorruption committee, Mr. Marhan said. A section of the committee's report referred to statements last week by some of its members that they believed Ms. Sri Mulyani, Mr. Boediono and subordinates were responsible for initiating the bailout. But the main text of the recommendations didn't mention specific officials by name. Both recommendations will be put to a vote by all lawmakers at a plenary session scheduled for Wednesday, which will determine what further actions will be taken. Analysts say it appears increasingly unlikely that serious action will be taken against Ms. Sri Mulyani and Mr. Boediono, since the committee failed to reach a definitive conclusion. The issue could still affect the economy, though, by making it more difficult for the government to push through unpopular measures, such as raising fuel and electricity tariffs, Prakriti Sofat, an economist with Barclays Capital, said in a report this week.Even if subsequent investigations find sufficient evidence to start impeachment proceedings against Mr. Boediono, removing him from his post would be a difficult and lengthy process under the rules of Indonesia's upper house of parliament, while removing Ms. Sri Mulyani would be relatively simple. Observers have said it is possible the two could eventually resign if political pressures keep mounting. But analysts generally believe such a scenario is unlikely right now.  President Yudhoyono has said he supports both officials, and isn't obligated to act on the committee's findings.

—Patrick Barta contributed to this article.

Write to Reuben Carder at reuben.carder@dowjones.com and I Made Sentana at i-made.sentana@dowjones.com

The List

The World's Biggest Bailouts

Lehman Brothers is no more. But before letting it fail, the United States rescued Bear Stearns and saved Fannie and Freddie. So what are the biggest bailouts of all time? In this List, FP looks at five of the biggest—and whether they were worth the cost.

SEPTEMBER 15, 2008

The U.S. Savings and Loan Crisis

Bailout date: August 1989

Amount: Estimates vary widely, but $200 billion (in 2008 dollars) is a reasonable figure.

What happened: 

The SL debacle of the late 80s and early 90s was long in the making and long in the unwinding. U.S. taxpayers were first put on the hook when then President George H.W. Bush (right) signed the Financial Institutions Reform, Recovery and Enforcement Act of 1989, which radically reformed the savings and loan industry and federal regulations. When the dust finally settled in 1995, more than 1,000 small lending institutions known as savings and loans, also called thrifts, had failed. Half of the federally insured thrift institutions in the United States had gone under in less than a decade, and the associated slowdown in new home construction and the financial fallout contributed to the 1990-1991 recession. The underlying causes of the SL crisis are complex and disputed, but most scholars generally agree that high, volatile interest rates, reckless lending practices, rapid deregulation, and lax oversight paved the way for the greatest banking disaster since the Great Depression.

South Korea

Bailout date: December 1997

Amount: $78 billion (in 2008 dollars)

What happened: Two words: Asian crisis. 

Beset by a collapsing currency and bankruptcies galore, South Korea turned to the International Monetary Fund (IMF) for help, and the World Bank, the United States, Japan, and 11 other countries pitched in funds as well. In exchange, the Korean government had to stomach tough conditions, including higher interest rates and reforms intended to open the countrys closed economy and crack down on cozy relationships between banks and large, opaque conglomerates called chaebols. The economic crisis brought to power opposition leader Kim Dae Jung (left), a reformer credited by many for pulling South Korea back from the brink of disaster. Today, South Koreas economy faces challenges of a different sortprincipally rising inflation and an aging populationthough The Economist forecasts 4.2 percent growth for 2009.

Indonesia

Bailout date: January 1998 April 1999

Cost: between $58 billion and $64.7 billion (in 2008 dollars)

What happened: 

Rocked by the Asian financial crisis of the late 1990s, Indonesia was home to one of the IMFs biggest bailouts. The countrys rupiah currency had been dropping steadily since August 1997, with inflation soaring to nearly 80 percent. On top of the ensuing capital flight, protests and political turmoil paralyzed the capital of Jakarta under President Suharto (shown at right with then IMF Managing Director Michel Camdessus), in power since 1968. At first, the IMF money was contingent on Suhartos ending his penchant for cronyism, but that stipulation was dropped shortly after the president defiantly named family members and associates to his government. After the bailout, Indonesias economic woes continued for several years and resentment grew toward the IMF policies of the 1990s, which some felt compromised the countrys economic sovereignty. Macroeconomic conditions eventually improved, aided by the resolution of the East Timor crisis. Ironically, the 2004 tsunami also helped, bringing the country close to settling a dispute in the separatist Aceh region. In 2006 and 2007, the U.S. CIA called the countrys stock market one of the three best performers in the world.

Brazil

Bailout dates: November 1998, August 2001, and August 2002

Cost: $56.7 billion, $16.3 billion, and $36.7 billion (respectively, in 2008 dollars)

What happened: 

Brazils first bailout in 1998 came on the heels of financial crises in Asia and Russia that had prompted panic among investors in Latin America. This time, the IMF and a host of other lenders vowed to head off the crisis before it struck. Brazil, South Americas largest economy, was offered a healthy package of aid to stabilize the region. In return, Brazil was asked to cut spending and raise taxes to prevent a budget shortfall. Brazils legislature rejected the conditions, but the loans went forward anyway. Lenders intervened again in the name of stability in 2001, as Brazils currency, the real, had devalued 20 percent between January and August and public debt was growing. Elections in 2002 raised yet more concerns as investors were unsure how leftist candidate Luiz Incio Lula da Silva (above) would handle the crisis. Brazils stock market fell further when then U.S. Treasury Secretary Paul ONeill demanded proof that another loan would not go out of the country to Swiss bank accounts. Furious, Brazil demanded an apology, and soon thereafter, the United States and the IMF offered the country a $30 billion package.

Argentina

Bailout dates: December 2000 and August 2001

Cost: $50.7 billion and $1.5 billion (respectively, in 2008 dollars)

What happened: 

Just two years after a dramatic recession that left unemployment at about 16 percent, Argentinas bailout came at a moment of severe crisis. A projected $6.5 billion budget shortfall in 2001 coincided with another $15 billion due to creditors that year. With Argentine markets tumbling, the government rushed to secure assistance from the IMF, the World Bank, and other lenders. Loans were extended again in 2001, and this time, lenders asked Argentina to slash pensions and government spending while raising taxes. The austere strategy provoked tens of thousands of angry protesters to hit the streets repeatedly. Despite the loans, the economic crisis was far from averted and the country defaulted on $81 billion in bonds in December 2001. Banks and the Argentine peso collapsed, and many middle-class Argentines fled abroad, their savings wiped out. In 2003, the IMF and Argentina agreed that the heavily indebted country would be asked to repay only the interest on its debt, and in March 2005, bondholders swallowed a restructuring of the defaulted debt. Argentina paid off a final $9.5 billion owed to the IMF in 2006, and on Sept. 2, President Cristina Fernndez de Kirchner promised to repay another $6.7 billion to the Paris Club of international creditors.

Note: One should be careful comparing bailouts of financial systems or national economies with those of individual firms such as Fannie Mae and Freddie Mac. Additionally, one could also list such bailouts relative to the size of the economy in question, in which case smaller countries such as the Dominican Republic would rank much higher.

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