Brazil’s late-1880s and early-1890s economic bubble and crash was called the Encilhamento.
The Encilhamento developed during Brazil’s transition from empire to republic. Finance ministers first loosened restrictions on banking and credit, then encouraged industrial investment through abundant money issuance. The reforms were intended to modernize Brazil, but they also made speculative finance much easier and helped inflate share, currency, and real-estate prices.
Rui Barbosa, finance minister after the 1889 proclamation of the republic, became the policy’s most prominent administrator. New rules allowed authorized banks to issue shares and extend credit with limited supervision. Fraudulent initial public offerings, aggressive takeovers, and companies with little real capital became part of the boom.
The bubble began to burst around 1890 and continued unwinding into the early 1890s. The shock was worsened by the failure of Baring Brothers and Argentina’s debt problems. Inflation, bankruptcies, financial distrust, and political turmoil followed. The Portuguese-derived word encilhamento refers literally to saddling a horse and evokes the rush to seize a supposedly fleeting opportunity. It is often mistaken for one of Brazil’s later stabilization plans, such as the Cruzado Plan or Plano Real, but it predates both by roughly a century.