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Financial Liberalisation, Currency Instability and Crisis in Brazil: Another Plan Bites the Dust

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Abstract

THIS PAPER PROVIDES AN INTERPRETATION of the Brazilian Real (stabilisation) plan, and its recent collapse. The plan was designed to maximise Brazil's ability to profit from the exceptional liquidity of the international credit markets, when low interest rates in the industrialised economies (especially the US) facilitated surges in capital flows to a select group of countries, the so-called ‘emerging markets.’ The general backdrop of the Brazilian plan, as well as similar policy initiatives in other emerging markets, was the neo-liberal fundamentalist prescription that countries should ‘liberalise, privatise, cut government spending and show to the world your commitment to liberal principles.’ Allegedly, this would be enough to inspire investor confidence, and allow the country to benefit from the exuberant power of capital inflows. The events that followed the adoption of that prescription in Brazil tell a very different story.

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... In Brazil, the crisis of the Real Plan in 1998-99 (Morais, Saad-Filho and Coelho, 1999) led to the introduction of a new macroeconomic policy regime that includes inflation targeting, large fiscal surpluses, and the managed fluctuation of the real. The aim of these policies was to preserve low inflation, stabilise the DPD and the exchange rate, and eliminate current account deficit. ...
... See alsoBacha (1997),Dornbusch (1997), Saad-Filho,Morais and Coelho (1999), andSachs and Zini (1996). ...
Article
This paper offers a political economy analysis of the two systems of accumulation in the postwar Brazilian economy: import-substituting industrialisation (ISI) and new liberalism, and the industrial policies associated with them. The transition between these two systems of accumulation from the early 1980s to the mid-1990s is reviewed in the light of the country's key macroeconomic indicators and the political developments which have determined the choice and implementation of economic policy in each period. It is argued that, despite their signifi-cant achievements, both ISI and new liberalism were implemented unevenly and inconsistent-ly, and that their shortcomings can be analysed at two levels: internal micro-and macro-eco-nomic limitations preventing these development strategies from achieving their stated aims, and external limitations imposed by social conflicts during each period of time. The paper con-cludes, first, that industrial policies are closely associated with specific state structures, economic constraints, and political configurations which can be analysed only concretely (there can be no general theory of industrial policy, and there is no 'optimum path' of accumulation under late development). Second, each system of accumulation is limited by a distinctive set of historically specific economic and political constraints, which set limits to its potential development. Third, and precisely for these reasons, industrial policy is irreducibly political and context-specific.
... In Brazil, the crisis of the Real Plan in 1998-99 (Morais, Saad-Filho and Coelho, 1999) led to the introduction of a new macroeconomic policy regime that includes inflation targeting, large fiscal surpluses, and the managed fluctuation of the real. The aim of these policies was to preserve low inflation, stabilise the DPD and the exchange rate, and eliminate current account deficit. ...
... See alsoBacha (1997),Dornbusch (1997), Saad-Filho,Morais and Coelho (1999), andSachs and Zini (1996). ...
... In turn, the PT helped him to be elected Speaker of the Senate. 5 In 1999, just after the devaluation of the real (see Morais, Coelho andSaad-Filho 1999 andSaad-Filho andMorais 2002), the president of the Central Bank, Francisco Lopes, defended in the Brazilian Congress the liberalisation of the capital account of the balance of payments, and rejected demands for emergency controls on capital flows. He claimed that controls that Lula would depend heavily on their support in Congress and in the state governments, and that the PT would be more sensitive than the neoliberals would to the plight of poorer regions -both of which would maximise the oligarchs' political power and influence. ...
... In turn, the PT helped him to be elected Speaker of the Senate. 5 In 1999, just after the devaluation of the real (see Morais, Coelho andSaad-Filho 1999 andSaad-Filho andMorais 2002), the president of the Central Bank, Francisco Lopes, defended in the Brazilian Congress the liberalisation of the capital account of the balance of payments, and rejected demands for emergency controls on capital flows. He claimed that controls that Lula would depend heavily on their support in Congress and in the state governments, and that the PT would be more sensitive than the neoliberals would to the plight of poorer regions -both of which would maximise the oligarchs' political power and influence. ...
... In Brazil, the crisis of the Real Plan, in 1998-9 (Morais, Saad-Filho, and Coelho 1999), led to the introduction of a new macroeconomic policy regime that included inflation targeting, large fiscal surpluses, and the managed fluctuation of the real. The aim of these policies was to preserve low inflation, stabilise the DPD and the exchange rate, and eliminate the current account deficit. ...
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This chapter offers a political economy analysis of the two systems of accumulation in the post-war Brazilian economy, import-substituting industrialisation (ISI) and new liberalism, and the industrial policies associated with them1.The shift across systems of accumulation has been associated with significant changes in the role, structure, and policies of the Brazilianstate. Section 1 examines the case of ISI, departing from a review of conventional assessments of this system of accumulation and offering an alternative interpretation of its economic and political structures. This section also considers the limitations of ISI and the reasons for its crisis in the eighties.
... Finally, the subsidies themselves were deemed unsustainable. In Brazil, the 1990s was a decade dominated by high inflation, which did not offer stable conditions for the private sector, nor for government subsidies which could quickly reduce in real terms (Fonseca, 1998;Morais, Saad Filho, & Coelho, 1999;Valenca, 1992;Valenca & Bonantes, 2010). In Argentina most of the subsidised housing projects were delivered by NGOs as the government was unable to create sustainably priced mortgages (Murillo, 2001). ...
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The aim of this paper is to examine the differences and similarities in housing policies in the four Latin American countries of Argentina, Brazil, Chile and Colombia. The paper uses the welfare regime approach, modified by a recognition of path dependence, to identify a number of phases that each country has passed through. However, attention is drawn to the substantial differences in the circumstances in each country and the extent and duration of the different phases. It is concluded that it can be beneficial to use the concept of a Latin American housing regime, but that this general picture has to be used with an understanding of the path dependence caused by the particular context in the individual countries.
... However, if one goes beyond this realm of production's 'first hand' to account for the realm of circulation as well, such a burden is a real possibility. Thus, it becomes apparent that the tax system can become a device through which value is transferred to those with access to the financial markets (Morais, Saad-Filho and Coelho, 1999). In sum, the 'usurer's capital has capital's mode of exploitation without its mode of production' (Marx, 1991(Marx, [1894: 732). ...
Article
In this paper, I discuss ways in which several important fiscal and monetary policies implemented in Brazil after the Real Plan interfered with class relations and how they reveal the financial class character of the state. The fiscal policies analyzed are the release of federal tax revenue entitlements, the so-called fiscal responsibility, and the goals for the primary and nominal fiscal results. In the realm of monetary policy, the analysis focuses on the priority given to inflation control and inflation targeting. The results suggest that these policies facilitated favoritism towards the financial fraction of capital; the policies constitute an institutional apparatus for the reproduction of the income that finance extorts from labor through the state.
... A drenagem de capital produtivo e monetário e salários através do sistema tributário para pagar o serviço da DMF é um reflexo da prioridade financeira das políticas neomonetaristas. Essas políticas tendem a concentrar renda (Bulmer-Thomas 1994, Cepal 1999, e elas reduzem o crescimento de longo prazo (Saad Filho, Morais & Coelho 1999). ...
Article
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This paper reviews the performance of the Brazilian economy during the 1990s, in the light of the neomonetarist policy shift implemented unevenly but incrementally across this decade. The paper shows that this policy shift was associated with, and contributed to, a change in the structure of manufacturing industry, the financial deterioration of the public sector, the tightening of the balance of payments constraint, and increasing external economic dependence. These structural changes were largely responsible for the currency crisis of 1999. Subsequent policy measures have largely failed to address these weaknesses of the Brazilian economy. Este artigo analisa a trajetória e as mudanças estruturais ocorridas na econo-mia brasileira durante os anos noventa. Essa foi uma década notável devido, em parte, às taxas de crescimento excepcionalmente baixas no período 1 e, em parte, às mudanças no modo de acumulação da economia brasileira 2 . A principal mudança foi o abandono da industrialização pela substituição de importações (ISI) por um novo modo de acumulação baseado na microintegração da base produtiva e do capital financeiro em circuitos transnacionais. Essa mudança foi justificada de duas * Somos gratos pelos comentários de projeto de pesquisa foi apoiado pela Nuffield Foundation (SGS/LB/203).
... This concept is explained by Fine and Rustomjee 1996. The Brazilian case is discussed by Saad-Filho 1998, Saad-Filho, Coelho and Morais 1999, Saad-Filho and Mollo 2002and Saad-Filho and Morais 2000 The term 'new liberalism' highlights the contrast between the new system of accumulation and the oligarchic 'old liberalism' of the early twentieth century, characterised by the hegemony of the coffee sector, foreign ownership of key industries, formal democracy, economic exclusion though oligarchic rule and state repression, and the lack of support for manufacturing industry. 5 See, for example, Baer 1995, Furtado 1972, Hewitt 1992and Tavares 1975 See Studart 1995. ...
... This source of disequilibrium will tend to become increasingly strong in the medium term, as potential privatization revenues are rapidly being exhausted. These difficulties have contributed to the speculative attacks suffered by the Real, and to the loss of reserves which led to the currency crash of January 1999 (Saad-Filho, Coelho, & Morais, 1999; seeFig. 11). ...
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This article outlines a political economy analysis of Brazilian high inflation and stabilization. The paper explains the distributive and monetary aspects of inflation and the gradual fragmentation of the Brazilian currency. It also reviews the most important aspects of the Real stabilization plan, the de-indexation of the economy, and its rapid “liberalization” and “internationalization.” The paper shows that, in spite of the successful reduction of inflation, the Real plan was highly vulnerable to shifts in international liquidity; partly for these reasons, it led to de-industrialization and high unemployment. In addition to this, the Real plan contributed to an increase in income inequality and the development of sharp social conflicts in Brazil. These weaknesses were the main factors responsible for the currency crisis in January 1999.
... The government had to relax its 'zero-inflation' policy, which in any event had been more like a single figure inflation policy. The Real crisis effectively meant further tightening of government expenditure in crucial areas of social policy (Fonseca, 1998;Morais, Saad Filho, & Coelho, 1999;Valença, 1998). ...
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This paper discusses social housing policy in Brazil since the 1990s by analyzing government programs' institutional arrangements, their sources of revenues and the formatting of related financial systems. The conclusion suggests that all these arrangements have not constituted a comprehensive housing policy with the clear aim of serving to enhance housing conditions in the country. Housing ‘policies’ since the 1990s – as proposed by Fernando Collor de Mello, Itamar Franco, Fernando Henrique Cardoso and Luis Inácio Lula da Silva's governments (in the latter case, despite much progress towards subsidized investment programs) – have sought to consolidate financial instruments in line with global markets, restructuring the way private interests operate within the system, a necessary however incomplete course of action. Different from rhetoric, this has resulted in failure as the more fundamental social results for the poor have not yet been achieved.
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Beginning with an analysis of the global context of substitution of neoliberal for developmentalist ideology, this article examines the financial expansion of the Brazilian economy that has taken place in the last two decennia. This process occurred in a context of a reorganization of economic relations, in which the state's role was fundamental despite the neoliberal discourse. Efforts to restore the profits of classes whose incomes were reduced by welfare policies were subjacent to this discourse. In Brazil, the neoliberal ideology began to be consolidated in the mid-1990s, with the Real Plan as its landmark. In addition to inflation control, the plan sought to attract over-accumulated capital that was circulating globally in search of profitable outlets. Reproducing the historical connection between capitalism and the state, a financial expansion of the Brazilian economy also occurred under this association, in which public debt was the great engine.
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Abstract This article outlines a political economy analysis of Brazilian high inflation and stabilization. The paper explains the distributive and monetary aspects of inflation and the gradual fragmentation of the Brazilian currency. It also reviews the most important aspects of the Real stabilization plan, the de-indexation of the economy, and its rapid “liberalization” and “internationalization.” The paper shows that, in spite of the successful reduction of inflation, the Real plan was highly vulnerable to shifts in international liquidity; partly for these reasons, it led to de-industrialization and high unemployment. In addition to this, the Real plan contributed to an increase in income inequality and the development of sharp social conflicts in Brazil. These weaknesses were the main factors responsible for the currency crisis in January 1999. © 2002 URPE. All rights reserved
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