What makes Brazil nuts could crack our economy.

• Position: Foreign markets and North Carolina

Jay Bryson analyzes foreign economies for First Union Corp.'s capital-markets group. He got his doctorate in economics from UNC Chapel Hill and was an economist with the Federal Reserve Board's international-finance division. He explains how foreign-market turmoil affects North Carolina.

BNC: The foreign economic crises seem never-ending. What's the latest?

Bryson: Asian currencies are stable against the dollar, even strengthening. Their stock markets have hung in there. But there are renewed concerns about Latin America.

You predicted a recession in Brazil. With the 8% devaluation of the real in January, is it happening?

It's not official, but they're skidding toward a recession very quickly. We've seen it coming for some time. The dollar outflows haven't let up. Interest rates remain very high. If they're forced to devalue again, which they will be, then the recession will deepen.

Are its problems caused by Asia?

That got the ball roiling. In October 1997 there was a day the Hong Kong market went down like 15%. So investors pulled wholesale out of emerging-market risk. A lot of Latin American countries got nailed. Brazil, to its credit, raised interest rates to defend its currency. But the longer you keep them up, the more you tank the real economy. The underlying problem is a very large current-account deficit, 3% to 4% of gross domestic product.

How does the Brazil crisis affect North Carolina production?

For producers without foreign operations, this is tough. Suddenly Brazilian textiles are 8% cheaper. But for a company with a plant here and in Latin America, they pay their Brazilian workers in real, and the dollar cost just went down 8%. They take the plant here to two shifts and switch one to Brazil. Workers here are definitely going to feel it.

Assuming you don't get unrest in Brazil?

Yes, assuming there's no political or social risk. Businesses will see how the situation develops. But look at Korea. It's been pretty stable since it devalued in November 1997. Workers have taken to the street to protest layoffs, but it's not anywhere close to what happened in Jakarta, with rioting in May.

What parts of the world affect North Carolina the most?

Many Asian countries are large textile producers, and their currencies have depreciated since summer 1997. So textiles coming into this country are very, very cheap. And Asian consumers have reined in their spending. They are big export markets for U.S. cigarettes. You could say, 'People who...