What crisis? Go ask Bush

``What crisis? Go ask Bush.''

That's how Brazilian President Luiz Inacio Lula da Silva replied to a question about the impact of the U.S. financial meltdown on the Brazilian economy. To disregard the worst financial debacle since the Great Depression and toss off a wisecrack in search of a cheap laugh can only accomplish one thing: unnerving investors.

The index of the Sao Paulo stock exchange, the Bovespa, has declined 34 percent since mid-May. Even before this week's nosedive, the reverberations of the U.S. crisis had already erased almost 600 billion reais ($316 billion) in market value from Bovespa companies. The Brazilian currency, the real, lost more than 16 percent of its value against the dollar in less than three weeks. Local banks are finding it hard to raise capital abroad, corporations are canceling debt and stock issues and larger investments are being postponed.

The consequences of a credit crunch are pretty well known by now: Higher interest rates lead to increased production costs that discourage consumption and force companies to reduce output and fire workers.

In Latin America's case, it's sure to drive away foreign investors and weaken the local currency. This can stoke inflation and raise the costs of imported goods and machinery.

Jose Sergio Gabrielli, the president of Petroleo Brasileiro SA, the oil company controlled by the Brazilian government and known as Petrobras, has already said the U.S. crisis can make it harder for the company to issue debt and raise the capital needed to explore Brazil's vast new oil findings.

Great Insight

And so we are treated to this insight from the president of the country with Latin America's biggest economy: The impact of the U.S. crisis on Brazil will be ``almost unnoticeable.''

Over the past few years, Lula and other Latin American leaders have surfed a wave of abundant international liquidity. Riding a wave makes you feel sharp, so sharp, sometimes you don't see even what is right in front of you. And when the wave breaks -- and they all do -- you may find yourself landing on soft sand or crashing into sharp rocks.

The world economy has been growing at its fastest pace since 1982, commodity prices have soared and demand for exports has surged. That has been a boon for much of Latin America, boosting local currencies against the U.S. dollar and helping trade and current-account balances.

This allowed several countries in the region to repay external debt and build up record levels of foreign reserves that now will come in handy as a cushion.

Beguiled by Credit

But years of inexpensive and abundant credit beguiled Latin America's leaders. Cheap credit also made them lazy. Instead of seizing the opportunity, most of them postponed decisions to address the real structural problems that limit their economies' capacity to perform better over a long period of time.

In Brazil, for example, Lula has abandoned the agenda of structural changes aimed at cutting taxes, revising labor legislation and ensuring the solvency of social security. Instead, he chose to hire 217,000 new federal-government workers and grant existing ones wage increases of as much as 137 percent. Now, Brazilians will probably miss the chance for real change.

Venezuelan President Hugo Chavez has spent oil dollars as if they would never end. He financed things such as a presidential candidate in Argentina and a samba school in Brazil.

Chavez also nationalized businesses better suited to the private sector, such as milk distributors and cement producers. Venezuelans now face annual inflation of almost 35 percent, productivity is falling and, to make things a little bleaker, a barrel of oil lost almost half its value in less than two months.

Easy Choices

In Argentina, President Cristina Fernandez de Kirchner has neglected the fight against inflation and public spending. She preferred to tamper with official inflation indexes and raise taxes on agricultural exports instead. This fueled the opposition, costing her loads of popularity and even a crucial vote in Congress cast by her own vice president. Now, Fernandez might be unable to fulfill her promise to repay Argentina's debt with the so-called Paris Club group of creditors.

Bolivian President Evo Morales has made himself believe all his country's problems would disappear if he nationalized energy companies and exported gas at a higher price. Now, he is requesting international help to suppress a political crisis. Something similar may happen in Paraguay, where recently elected President Fernando Lugo believes charging more for the energy sold to Brazil will do the trick.

As the old saying goes, past performance is no guarantee of future results. It's worth reminding Lula and fellow ``decouplers,'' those who think Latin America will go on its merry way while the U.S. flounders, of this motto.

Maybe the decouplers are right, and this time is different. In the meantime, I propose an alternative motto that the decouplers and their skeptics can agree on: When everything is going great, prepare for the day when things aren't going so great. Doing so would be an important first step for Lula and other Latin leaders.