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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.

The fear is that the rebellion will spread to other states. So far, no other governor has followed Mr. Franco’s lead, but two have said that they want to renegotiate the terms of their payments. Their unwillingness to confront the president directly does not mean that they cannot hurt Mr. Cardoso, however. State governors have considerable say over their delegations in the federal congress and the president needs congressional approval for his austerity package. The plan is sure to have lots of opposition: It calls for $23.5 billion in tax increases and spending cuts. But its passage is a prerequisite for $41.5 billion in credits from the International Monetary Fund due in February.

So, to make sure that no one would line up behind Mr. Franco, Mr. Cardoso’s government has withheld some $10 million in tax payouts to the state and has threatened to block another $45 million later this month if the payments do not resume. Mr. Cardoso has also told the leaders of the five parties in his coalition government that their Cabinet positions depend on ensuring that their members support the austerity package. The effectiveness of that threat remains to be seen: Last December — before the current Cabinet was inaugurated — the Congress failed to pass a bill that would have taxed pensions of public-sector employees. The fallout seems to have been limited, however: Since then, the government revealed measures designed to cut the budget deficit by $5.5 billion.

Mr. Cardoso was elected to a second four-year term last year on the strength of his economic stabilization measures. His track record has been instrumental in maintaining investor confidence when Brazil hit rough spots last year. But some now wonder whether the prospect of a projected 4 percent decline in gross domestic product this year will prove to be beyond even Mr. Cardoso’s mettle. Those hardships, on top of a government austerity program, are an invitation to revolt. Mr. Franco, who is suspected of wanting to run for the presidency in 2002 from a center-left position, might be just the man to lead it.

The chief problem for Mr. Cardoso — and the world economy — is that he does not have to fail for the crisis to hit. As the Asian crisis has illustrated, it is perceptions that matter. If the international currency traders lose faith in the president, they can bring the country’s economy to its knees. Earlier this week, nearly $1 billion left Brazil in response to the standoff. After Russia’s turmoil last summer, only IMF intervention staved off a collapse of Brazil’s currency. A devaluation would likely have triggered a regional recession, and the effects would have been felt in the United States, which sends about 20 percent of its exports to Latin America. Since a slowdown is already anticipated for the U.S. economy this year, the margin of error is shrinking. It will take all of Mr. Cardoso’s considerable skills to navigate this obstacle course.

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