No More Blood in the Stone

Brazil will halt interest payments on its $108 billion in loans

The tone of the speech was neither defiant nor belligerent, but the words were fraught with danger for bankers around the world. As the television camera zoomed in and a concerned nation watched, a somber Brazilian President Jose Sarney dispensed with niceties and got right to the point: "I want to announce that the country is suspending payments of interest on its foreign debt." The action was necessary, he said, to prevent Brazil from running out of money. Still, he continued, "it was not easy to make a decision of this magnitude."

Indeed, its magnitude can hardly be overstated. Brazil is...