Meeting in Hong Kong earlier this week, 17 of the world's central bankers expressed cautious optimism that the Asian economic crisis had bottomed out. Any relief those comments might have inspired was short-lived: Almost immediately after came reports of a political standoff in Brazil. If President Fernando Henrique Cardoso cannot persuade the Congress to pass his economic austerity package, the world's eighth-largest economy might fall victim to an Asian-style meltdown, which could trigger another round of financial shocks worldwide.

Ironically, Mr. Cardoso's nemesis in this current round of troubles is the man who made it possible for Mr. Cardoso to become president: Mr. Itamar Franco, the new governor of the state of Minas Gerais. When Mr. Franco served as president of Brazil from 1992-94, he appointed Mr. Cardoso as one of his finance ministers. Mr. Cardoso then engineered the Real plan that clobbered inflation and made him popular enough to later claim the presidency himself. Reportedly, Mr. Franco has chafed at the way Mr. Cardoso got all the credit.

The instrument of Mr. Franco's revenge is the debt repayments that Brazil's 27 state governments owe the central government. In the last 18 months, 24 states renegotiated their payments to Brasilia. Those payments are an integral part of the federal government's plan to cut the budget deficit to 8 percent of gross domestic product. Although Minas Gerais refinanced its debt, Mr. Franco was not the negotiator: His predecessor, the man who did, was a supporter of Mr. Cardoso. Having taken office since then, Mr. Franco has decided that Minas Gerais, Brazil's third wealthiest state, cannot afford the payments and has declared a 90-day moratorium.