A Beginner's Guide to Brazilian Economic Idiosyncrasies

How to Understand the Superpower-to-be

Sugar Loaf Cable Car - Bondinho Pão de Açúcar
A Beginner's Guide to Brazilian Economic Idiosyncrasies : How to Understand the Superpower-to-be - CARLOS A.B. GÓES


In the last quarter century, Brazil has undergone structural economic changes. This article aims to help the reader understand how Brazil overcame the discouraging scenario of the mid-1980s and early 1990s to become a major global economic power. A unique story of a lively economic policy laboratory is told by laying out eight economic idiosyncrasies that need to be examined in order to grasp the country’s past and future challenges and analyze whether or when it will emerge as an economic superpower.


A famous Brazilian national joke has become somewhat out of date lately: it says Brazil is the country of the future – and it always will be. If one reads the most recent reports, the impression is that Brazil is one of the rising powers of the post-unipolar world order. In late 2011, the country became the world’s 6th largest economy. Brazil distinguishes itself from the other BRIC (Brazil, Russia, India, and China) countries in that it has no civil wars, ethnic conflicts, or unfriendly relations with its neighbours. Unlike the Chinese or Russians, Brazilians have managed to consolidate a free-market democracy with regular free and fair elections, with different parties and politicians alternating in power.

However, at the beginning of Brazilian political and economic stabilization in the mid-1980s, the country’s situation seemed completely hopeless. In 1984, a moribund military regime frustrated a popular uprising that demanded direct presidential elections by saying nay to a constitutional amendment. In 1985, the first civilian elected president since 1964 died before being sworn in, painting the national mood with despair and mourning. In 1987, Brazil was unable to pay its public debt and defaulted. In 1990, monthly inflation peaked at 83.4%.In 1992, the first president elected by popular vote since 1961 was impeached due to charges of corruption and embezzlement.

How did a hopeless country become a rising superpower with outstanding political and macroeconomic stability? The goal of this article is twofold: firstly, it seeks to help the reader understand how Brazil overcame the discouraging scenario of the mid-1980s and early 1990s; secondly, it presents the challenges to come, which might limit growth and development in Brazil. In order to do so, there is a brief review of the literature regarding Brazilian economic history from 1985 to the present, which interested students can use for further reference.

Examined are eight idiosyncrasies that set Brazil apart from other emerging economies and are important dots one should connect in order to understand the past and future developments of the Brazilian economy. Four of these idiosyncrasies have been overcome in the recent past, while the remaining four represent barriers still to be overcome in the future. In spite of being an introductory piece, this work’s value lies in telling the unique story of a lively economic policy laboratory in an innovative way, and straightforwardly presenting a successful case of economic stabilization.3

Idiosyncrasies Overcome: How Brazil Achieved Economic Stability

1.1. Idiosyncrasy #1: The Big Money Machine

As Brazil has possessed a large public sector since the early 1930s, financing government spending became cumbersome.4 To some extent, this was done by economic growth and debt, but a considerable part of that was financed through monetary expansions. The first idiosyncrasy addressed in this paper is the big money machine of the Brazilian public sector. In 1964, the Brazilian Central Bank was created by the military regime. However, the money reserves of state banks, the largest retail banks, remained in the government-owned Bank of Brazil, a publicly listed retail bank, which acted as the lender of last resort to the Brazilian financial system.

In order to deal with the accounting problems of such a division of labor, regulators created a “transfer account,” the conta-movimento, between the Bank of Brazil and the Central Bank. The transfer account would balance the Bank of Brazil’s assets and liabilities at the end of each day. For instance, if the Bank lent a billion dollars during the day and had no extra deposits, it would have a positive balance in the transfer account, and the excess reserves would be transferred to the Central Bank. Conversely, if the Bank had excessive withdrawals, it would be indebted in the transfer account and the Central Bank would have to inject freshly printed money into the transfer account.5

In reality, what occurred was the de facto creation of multiple money authorities in the country. At the federal level, any Ministry was able to order discretionary withdrawals from the federal government account at the Bank of Brazil. At the state level, all governors could do the same with their own state banks, which would then eventually ask for extra reserves from the Bank of Brazil. In both cases, negative balances in reserves were compensated by the injection of money through the transfer account. Therefore, politicians had, both at the state and federal levels, virtually unlimited budgets. There was no effective central money authority in Brazil, but rather multiple authorities carrying out monetary policy.

Graph 1 - The Big Money Machine Cash Flows (designed by the author)

With the big money machine fully operational, the conditions for scaling inflation were set by the mid-1960s.6 It should be no surprise, then, that average annual inflation rates between 1964 and 1969 were 37.3%.7 In spite of this period of high inflation, there was an overall declining rate of inflation during this period.

Graph 2 – Monthly inflation, 1964-1969, in percentage points

1.2. Idiosyncrasy #2: The Indexed Economy

In the early 1960s, as inflation became naturalized, the federal government created the so-called monetary correction, or a mechanism that incorporated past inflation into present prices in order to account for losses in real terms and correct prices to previous levels, regardless of nominal changes. Nonetheless, as individuals knew wages and utilities would be increased automatically on a monthly basis due to past inflation, they rationally incorporated future inflation into present prices. Once the economy was indexed with past inflation, the general level of prices increased rapidly and losses occured at a faster rate, resulting in the decreasing average value of real wages. This led to the second Brazilian economic idiosyncrasy: an indexed economy.

Graph 3 - Effects of an indexed economy on real wages.8


In the short-run, the government had some room to try unpopular policies to control inflation. There was limited interest to control public spending, which was a major source of inflationary expectations. But after indexing the economy, the federal government had another way to push price levels down: it did so by using indexes that did not represent the entire wage losses for the past period and by subsidising the price of utilities. The government coordinated a nationwide squeeze on salaries. Lower real wages and reduced production costs made real prices drop. In fact, the combination of constant expansions of money supply and smaller real wages meant that the government controlled a higher proportion of national wealth, with inflation being an additional tax on all consumers.

Graph 4 - Government-sanctioned squeeze on real wages.9
Note that the peak value of real wage does not reach its original value (100).

The indexed economy had consequences in the aftermath of the military regime. By the mid-1980s, the Brazilian economy was already used to high inflation: the average annual rate for the 1964-1984 period was 77.3%. Once democracy was reinstated in 1985, public pressure for not squeezing wages was significant. Leitão10 adds that the one thing the new civilian government wanted to signal to the public was that the squeeze on salaries was something not to be repeated; any whisper of policies resembling it was banned from the Planalto.11 This scenario was the trigger for hyperinflation.

1.3. Idiosyncrasy #3: Inertial Inflation

Even though the federal government did try to adjust its accounts, it was unable to print money12to pay its foreign debt and eventually defaulted in 1987. No simple spending cuts and monetary discipline would have been enough to reverse the inflationary trends in the country, which leads to the third economic idiosyncrasy: inertial inflation. Traditional economic reasoning did not capture the driving elements of Brazilian inflation. Rather than a result of changes in aggregate supply and demand, inflation derived mainly from the fact that economic agents expected prices to rise in the future.13 During the late 1980s, inflation became completely detached from fiscal and monetary policies, driven by inflationary expectations.

A large endeavour was necessary to reverse the trend of inflationary expectations and to avert a total collapse of the monetary system. The first step to disassemble the inflationary machine was taken in 1984, when the transfer account between the Central Bank and the Bank of Brazil was disbanded and the Central Bank became the sole monetary authority in the country, decoupling the big money machine, the first idiosyncrasy. After that, there were many additional attempts to tackle inflation.14

In 1985, annual inflation reached 242% and the usual recipe of lower spending and monetary constraint was hardly having any effect15. Meanwhile, a group of young Brazilian economists based chiefly at the Catholic University of Rio de Janeiro and trained at American universities, were designing out-of-the-box solutions to Brazil’s inflationary problems.16 The aforementioned idea of inertial inflation was an organic solution brought to the public debate by these economists, especially by the works of Arida and Lara-Resende17, Lopes18, and Bresser-Pereira and Nakano.19

Lopes argued for the need of an “unorthodox shock” to the economy. Such an approach was the basis for the Cruzado Plan (1986). Aside from a new currency, this plan embraced a complete freeze on prices. President José Sarney (1985-89) attempted to tackle inflation by decree: price increases were forbidden and those who failed to comply could have their stores shut down. The plan also froze all wages and the exchange rate, pegging the currency to the U.S. dollar. For a few months inflation dropped close to zero. Average monthly inflation was 2.14% between March and October of 1985, compared to 12.53% in the eight months prior to March.20

Nevertheless, price controls had damaging side effects, as they made supply and demand irrelevant. Prices ceased to be a signal for consumers and producers and interactions simply became a number in the government-approved tables. Three years before the Berlin Wall collapsed, Brazil was undertaking a one-of-a-kind socialist experiment. Price controls resulted in shortages of all kinds of products. Producers chose not to produce as they faced losses by selling at the established prices. Several black markets appeared.21 Four months later, inflation kicked back in at an even faster pace than before.

When Fernando Collor was sworn in as president in March 1990, hyperinflation was no longer the fear, but the reality, as prices were increasing by 82.39% each month. Collor, a young politician from a tiny state in Northeast Brazil, was the first president elected by popular vote after 29 years of indirect elections. He came into office with two promises: politically, he claimed to be a “maharaja hunter,” portraying himself as an outsider anti-establishment politician; economically, he claimed to have a silver bullet to tackle inflation once and for all. Politically, Collor became the first president to be impeached in Brazil, charged with corruption and embezzlement. Economically, his silver bullet was to freeze any deposits that surpassed 50,000 Cruzeiros ( 2,203 present-value dollars),22 which shrank money supply to stop hyperinflation. However, real life impacts were devastating. Leitão23 recounts heart-breaking stories about retirees who killed themselves after being stripped of their life savings and couples unable to marry because of the Collor Plan.

The last attempt to control inflation, termed the Real Plan, was based on proposals by Arida and Lara-Resende, and was headed by Fernando Henrique Cardoso24, then Minister of Finance. The Real Plan introduced a unit-of-account pegged to the dollar (“URV,” standing for Real Value Unit), which existed alongside the old inflation prone currency. Prices still increased with the inflationary currency, but not with the pegged URV, so economic agents realized that the real value of goods did not change. After some time, firms and individuals voluntarily opted out of the inflationary currency, bank deposits were allowed in URVs, and price tags began to be shown in URVs, which were converted to a national currency by cashiers through a daily exchange rate between URVs and the actual currency. Eventually, the government abandoned the old currency altogether and started printing a new one, the Real in par with URVs.

Concomitantly, the government ended most kinds of legally enforced monetary correction mechanisms, eliminating economic indexation, the second idiosyncrasy. With a new currency and a non-indexed economy, inflationary expectations were controlled and ordinary monetary policy once again was possible. With that, inertial inflation, the third idiosyncrasy, was also gone. The Real Plan was successful, it reduced inflation to single digit annual rates as shown in Graph 5 below, and assured Mr. Cardoso two consecutive landslide presidential victories.

Graph 5 - Monthly inflation, in percentage points (1984-2012)


1.4. Idiosyncrasy #4: The Poverty Gap

After 1999, when the real ceased to be a pegged currency,25 the guidelines that became known as the Brazilian “macroeconomic tripod” were established: floating exchange rates, inflation targeting, and budget surpluses. The results of this set of policies were twofold: a stable economy and floating exchange rates, along with high international commodity prices, allowed for large trade and budget surpluses that led to fiscal consolidation (present net publicly held debt-to-GDP ratio stands at 36%). The country subsequently underwent the first period of economic growth in a century coupled with macroeconomic stability between 2003 and 2008.

Brazil could only overcome its poverty gap once it had stabilized its economy. In 16 years, Brazil increased its GDP per capita by 35% and reduced its poor population by 22%, lifting nearly 40 million people out of poverty. The Real Plan, coupled with in-cash-transfer poverty alleviation programs created by President Cardoso (1994-2002) and massively expanded by President Lula (2003-2009), led Brazil to close the poverty gap, the fourth economic idiosyncrasy overcome.

By the early 1990s, even though Brazil was clearly a middle-high income country,26 its poor population share was unacceptably large (43%). Disinflation alone reduced poverty by 8% in one single year, whereas sustainable growth since 2003 has resulted in a 15% decrease in poverty. Even though this process is still history in the making, Brazil undeniably reached a new development level, symbolically represented by achieving the high human development status in the United Nations’ Human Development Index in 2007.

Graph 6 - Population under poverty line (left axis); and GDP per capita (right axis)

Persistent Idiosyncrasies: Just Not Quite There Yet

2.1. Idiosyncrasy #5: Excessive Bureaucracy

From 1985 to the present day, Brazilian society has surmounted four idiosyncrasies. Alas, life is not a bed of roses, and Brasilia’s bureaucrats’ desks certainly are not either. Some important challenges lie ahead.

Firstly, there is a persistent institutional culture that assumes there is no such thing as too much bureaucracy.27 One institutional characteristic of Brazil's political system that helps to explain the increasing trend in the number of ministries, wages, maintenance, and operational expenditures (WM&O) of the federal government is Brazil’s party system, as illustrated in Graph 7 below. Brazil's highly fragmented party system leads to a perennial absence of effective coalitions in Congress. Every single administration is constrained by alliances forged to assure a satisfactory majority in Congress, which allows it to pass the bills deemed necessary for advancing its political agenda.

A traditional way to seal alliances is to split ministries between the different parties that support the administration. Usually, parties in charge of ministries appoint the Minister and many aides in lower positions. This is an opportunity to reward people with party connections and augment the parties’ resources through high donations from the newly appointed aides. Such a backdrop creates perverse incentives, which are behind the constant increase in the number of ministries in the last 20 years. By the same token, they contribute to the ever-increasing federal government’s WM&O expenses, having reached its apex during President Lula's administration (2003-2010).

Graph 7 – WM&O Expenses, left axis; and Number of Ministries, right axis.28

Some attempts to change this scenario have been made in the last couple of decades. Key economic actors, such as the Minister of Finance and the President of the Central Bank,29 along with their respective aides, now tend to follow more technical and meritocratic guidelines, breaking with the split-the-spoil logic of other government appointees. Another important move came with the privatizations of public entities in the early 1990s, when the federal government sold nearly one hundred government-owned enterprises, the majority of which possessed large operational deficits.

However, as Lazzarini30 points out, Brazilian privatizations represented only a timid reduction of government interference in the marketplace. Actually, government is still intrinsically intertwined with several industries through large investments and subsidised loans granted by public banks, and especially equity claims by federal employees' pension funds. A close relationship between government officials and corporations, coupled with bureaucrats and politician possessing significant room for discretionary spending and decision making, is nothing but an invitation to crony capitalism.31

A tacit consensus for big government prevails amongst Brazilian political leaders. Although the ruling Workers Party (PT) polarizes the debate with the Party of Brazilian Social Democracy (PSDB), the actual differences are minimal.32 President Lula summarized such consensus in a memorable televised address: “Brazil believes in free markets but also in the government’s role as development promoter [and] will always seek for the balance that assures the best for its people.”33

2.2. Idiosyncrasy #6: The Autarkic Dream

Acknowledging the general belief that an active government is essential helps to understand the second idiosyncrasy addressed in this section: Brazil's autarkic dream. From the early 1930s to the 1990s, Imports Substitution Industrialization (ISI), a doctrine developed by the economists of the United Nations Economic Commission for Latin America, guided economic policy seeking “self-sufficiency.” ISI is grounded on high protectionism and an active government creating and subsidizing firms in “strategic industries” like energy, steel, petrochemical, banking, telecommunications, and auto industries. The rationale behind such policies is that infant industries would not be able to fairly compete in international markets and government had to stimulate such industries so as to avoid “deterioration in the country’s terms of trade.”34Although the country underwent significant trade liberalization, 60 years of severe protectionism left deep scars on the Brazilian political fabric.35

It is true that general tariff levels were reduced in the early 1990s under the rule of President Collor, one of the few campaign promises he managed to fulfill during his faulty and short-lived term. Collor said Brazilians should not be bound to have out-dated cars and technology for the sake of big corporations and strong unions.36 From 1987 to 1998, average tariffs were reduced from 77.1% to 20.2%, although top tariffs still reached as much as 129.2%.37

Such changes ought to be interpreted whilst remembering two relevant points. Initially, the average tariffs charged before this liberalization were so high that even after a substantial reduction they were still much higher than countries more open to free trade.38 More importantly, the autarkic mind-set is still persistent. Even though “exports promotion” replaced “imports substitution” as the Ministry of Industry’s unofficial motto, imports are still deemed as a negative consequence of trade engagement. For instance, government officials, Ministers included, will not hesitate to pressure the Central Bank to manipulate the foreign exchange market if exporters have any kind of demands regarding competitiveness.39

2.3. Idiosyncrasy #7: The Educational Gap

Another persistent Brazilian idiosyncrasy is the educational gap. Whereas the country is quickly overcoming the poverty gap, its distorted educational system is problematic and is bound to plague present and future generations. There is a high likelihood that a shortage in skilled human resources will constrain income growth in Brazil, which is expected to receive growing volumes of capital inflows.

The Brazilian Government spends too much on higher education and too little on primary and secondary education. Hence, there is a clear gap between primary/secondary and tertiary education. The former group is deemed as lacking quality by any kind of standardized indicator, such as the OECD’s Program for International Student Assessment (PISA). Conversely, when compared to similar income level countries, Brazilian tertiary education is characterized by a relative overflow of investments.

According to the Brazilian Federal Government’s own National High School Standardised Exams (ENEM), public school pupils hold much lower average marks than their counterparts in private schools. Indeed, unlike many developed countries, private primary/secondary education in Brazil is not a privilege of the higher classes, but rather an investment that most middle class families make in their children’s education. This holds true for two reasons: the discrepancies between public and private education and, more specifically, the poor quality of Brazilian public schools. Moreover, admission to the free high-quality Brazilian universities is so competitive that the odds of public school pupils getting into public universities are very low.

In a sense, the Brazilian educational system is upside down when compared to the Anglo-Saxon ones: instead of profiting from a decent basic public education and saving for a more costly higher education, pupils and parents have to invest during the early years in order to not pay in the future. The perverse side effect of such a system is that it bars public school pupils from entering top universities, thereby diminishing the possibility for meritocracy, increasing the importance of parental income in determining a child’s education, and damaging social mobility.

It should be highlighted that the federal government’s policies actually incentivize the persistency of such educational gaps. Even though in the 1990s public primary education had been universalized to reach all children of school age, quality still lags far behind. Government per capita spending on primary, secondary, and tertiary education is $2,155; $2,058; and $10,991 USD,40 respectively; that is, the expenses with tertiary expenses are 553% its expenses in the other levels, whereas the average in OECD is 130% as shown in Graph 8 below.

Graph 8 – Tertiary–Primary/Secondary Education Per Capita Expenditures ratio.
The higher the ratio, the more tertiary education is privileged in relation to the other levels. OECD average ratio is 129%.41

There is an ideational multi-partisan consensus that helps to maintain the status quo. On the one hand, the Workers’ Party (PT) is strongly tied to the administrative and professorial staff and the federal universities unions which keep demanding higher investment towards such institutions, especially in the form of salary increases. On the other hand, the urban middle class, which benefits from free-of-charge high quality higher education and does not support structural changes in the distorted educational system, supports the Party of Brazilian Social Democracy (PSDB). Lastly, several legal provisions in the Brazilian Constitution make any shift from prioritizing higher education to primary and secondary levels highly unlikely.

2.4. Idiosyncrasy #8: The Logistical Shortfall

The last idiosyncrasy Brazil is facing is a logistical shortfallIt consists of a spread between average transportation costs faced by Brazilian producers, retailers, and their counterparts in countries with similar geographical dimensions, which drives marginal costs up, diminishes profits, and damages competitiveness. There are countless reasons why Brazil lags behind in logistical performance. Three of them will be analysed here, for they have special importance in negatively contributing to the country’s performance.

Graph 9 - Logistics Performance Index.42 The higher the value, the better the logistic performance.

Firstly, historically, Brazilian regulators have prioritized roadways over railways and waterways for freight. This situation has diminished gains from scale. Furthermore, a general aversion towards the privatization of highways has left federally managed roads with persistent maintenance problems, increasing shipping times, and raising costs further. Additionally, Brazilian ports have not kept pace with the technological advances of the last 20 years. Poor mechanization of terminals, lack of integration with the few existent railways, and the impossibility of docking large-scale ships limit the speed and volume of trade in Brazil. Federal and state governments lack the resources to invest in port modernization and there has been little movement to free room for private investors, which helps explain why the Port of Santos, the busiest in Brazil, cannot dock large cargo-ships or super-tankers due to its limited draught depth.43 Lastly, customs clearance is inefficient. Minor paperwork mistakes and out-dated payment systems mean that cargo is held for several days at the ports or at the Brazilian border. All of these combined places Brazilian firms in a bad position to compete internationally and has negatively impacted the country’s comparative advantages.

Conclusions: a Roadmap for the Future

This article has sought to help the reader better understand Brazil’s future. However, one cannot do so without connecting the dots, or first understanding how Brazil stabilized its economy and overcame its odd idiosyncrasies: a big money machine, an indexed economy, inertial inflation, and a poverty gap.  Moreover, as most economic forecasts and analysis point to the fact that the “B” in BRICs is bound to become an economic superpower in the near future, it is important to shed some light onto the challenges that lie ahead.

A historiography of economic idiosyncrasies is an innovative way of understanding economic development. It highlights elements that cannot be grasped through economic statistics, nor through traditional political history. Rather, it reads between the lines to stress how politics and the economy are intertwined. The inventiveness, boldness, limits, and ignorance of bureaucrats and politicians are variables that one can hardly foresee or derive from statistics. However, a glance towards the past helps to understand the challenges that lie ahead.

There is a need for comprehensive reforms that address the remaining idiosyncrasies: Congress and the current Administration need to compromise on long-term solutions, as it previously has done to overcome past idiosyncrasies. If politicians do not come together, the limits imposed by human resource shortages, logistical shortfalls, lack of integration with international markets, and excessive bureaucracy will limit Brazil’s future growth and development.

All of the yet-to-be-overcome idiosyncrasies addressed in this article are significant barriers that Brazil, as a society, must face in order to achieve its goal of long-lasting development and progress. For the economic and political observer, then, the resolution of these remaining idiosyncrasies are the key to predicting when the country will emerge as an economic superpower. All the remaining barriers stand tall. Nevertheless, a look towards the not so distant past shows that even taller barriers have been overcome and Brazil shines as a consolidated market democracy, with fiscal soundness, a population that is being enriched at a reasonable pace, and no military problems whatsoever.  Perhaps Brazil is the country of the future, after all. Maybe, the future will not be eternally postponed and Brazil will emerge as an economic superpower. Whether the future is around the corner or can only be achieved after a drawn out marathon is to be determined by how Brazilians deal with their remaining idiosyncrasies.

Notes & References

  1. I wholeheartedly thank Carlos Pio, Saulo Said, Tom Roundell, Nick Borroz, Nate Hojnacki, and Cat Ramsey for their extensive review, criticisms, and suggestions, emphasising, though, that the responsibility for any mistake or inaccuracy in the these pages is solely mine.
  2. During the text I refer several times to monthly inflation, as opposed to annual inflation. This data can be annualized using the following formula: πa = (1+πm)^12-1 where πa stands for annualized inflation and πm stands for monthly inflation.
  3. Unfortunately, the greatest part of literature regarding the Brazilian economy is available in Portuguese only. A comprehensive economic history of Brazil is available in English, by Werner Baer (2007), although the book is excessively discriptive and hardly analytical at all. See Baer, Werner. The Brazilian Economy: Growth and Development. Boulder, Colorado: Lynne Rienner Publishers, 2007.
  4. Since 1930, when Getúlio Vargas first came into power through a coup d’état, Brazil has been characterized by state-led capitalism, with power disproportionately concentrated in with the federal government. Two different dictatorial periods (1930-1945 and 1964-1985) would further centralize power. In the second half of the 20th century, Brazil was characterized by a huge public sector and highly oligopolistic industries in an attempt to foster competitiveness. For a history of ideas in political economy during the 20th century, see the first section of Góes, Carlos, and Dimas Fazio. Seeking the Common Denominator: Confronting Clashing Interpretations of the Global Financial Crisis. Vol. 1, in Pondering the 2000s, Tracing Their Legacy, by A. R, Silva, H. F. S. Torres and P. B. Timo, 57-120. Brasilia: Universidade de Brasilia, 2010.
  5. Nobrega, Maílson da. “Correspondência com Maílson da Nobrega sobre a Conta Movimento.” Site de Gustavo Franco. 21 May 2004. http://www.econ.puc-rio.br/gfranco/Mailson-corespondencia.htm (accessed January 25, 2012).
  6. Leitão, Miriam. Saga Brasileira: A Longa Luta de Um Povo por Sua Moeda. Rio de Janeiro: Record, 2011.
  7. Such assumption would eventually be known as the Cagan Model, formally defined as, which states that present prices pt will be the sum of expected increases in money supply m of t+x.
  8. All macroeconomic statistics cited in this work, unless explicitly referenced otherwise, should be attributed to Ipeadata, an online database related to Ipea, the Brazilian Government economic research think-tank. See Ipeadata. Instituto de Pesquisa Econômica Aplicada (IPEA) – http://www.ipeadata.gov.br/
  9. See Lopes, Francisco. “Inflação inercial, hiperinflação e desinflação: notas e conjecturas.” Revista de Economia Política 5.2 (abril-junho 1985): 13-30. Lopes defines average real wages in an indexed economy as a function of inflation π, the time interval between wage corrections
  10. Leitão, 40-55.
  11. Planalto is the Brazilian House of Government, its use as a substantive is similar to “White House” or “Downing Street.”
  12. In the economic jargon: to “monetize” its debt.
  13. See Arida, Persio, and André Lara-Resende. “Inertial Inflation and Monetary Reform in Brazil.” Inflation and Indexation. Washington, DC: Institute of International Economics, 1984. 1-30.
  14. During a ten-year period, Brazil had six different currencies and several major economic plans: Cruzeiro (until 1986); Cruzado (1986-1989); Cruzado Novo (1989-1990); Cruzeiro [same name as before 1986, new currency] (1990-1993); and Real (since 1994). For the sake of parsimony, I focus briefly only on the three main ones: Cruzado (1986), Collor (1990), and Real (1994).
  15. See Bacha, Edimar. “Observações preliminares sobre a estratégia econômica do novo governo brasileiro.” Revista de Economia Política 1.6 (Jan-Abr 1986).
  16. For a thorough analysis, see Pio, Carlos. “A Estabilização Heterodoxa no Brasil: ideias e redes políticas.” Revista Brasileira de Ciências Sociais 16. 47 (2001): 29-54.
  17. Arida, Persio, and André Lara-Resende. “Inertial Inflation and Monetary Reform in Brazil.” Inflation and Indexation. Washington, DC: Institute of International Economics, 1984. 1-30.
  18. Bresser-Pereira, L.C., and Y. Nakano. Inflação e Recessão. São Paulo: Brasiliense, 1984.
  19. Lopes, Francisco. “Inflação inercial, hiperinflação e desinflação: notas e conjecturas.” Revista de Economia Política
  20. (abril-junho 1985): 13-30. Such a change deeply impacted people’s lives. Under high inflation, due to the fact that one’s wage devalues over time, everyone had to rush to the supermarket on the day they got their pay check and buy as much as they could, stockpiling food and other goods. Whereas a can of corn by the beginning of the month was still a can of corn in 15-days’ time, the price one paid for the same corn can after 15 days was much higher, so stockpiling was a way to protect oneself against inflation. Such need for speed severely diminished consumer power in the marketplace. Individuals were not able to compare prices in different stores, because they could not afford the risk of wasting time and facing further price increases. In the mid-1980s in Brazil, time literally was money! This helps to explain why the population embraced the Cruzado Plan and Sarney keeps to this date the record of being the most popular president in Brazilian history, with approval rates over 90% - albeit only for few months. In one remarkable story, a man spotted price increases in a local supermarket in Curitiba, a state capital in Southern Brazil, and led his fellow citizens to shutting the business down “in the name of the People!” See Leitão.
  21. It is remarkably interesting to hear the stories of those who had to go to “sketchy” places and buy milk and beef from “dealers.”
  22. In 20 March 1990, the exchange rate was 1 US$ = 38.963 Cr$. Hence, in 1990, 50,000 Cr$ = 1283.26 US$. Adjusting dollars by US inflation for the 1990-2011 period, which was 72.1%, the result is 2,203 dollars. Data from the Time Series Management System – Banco Central do Brasil (Brazilian Central Bank): https://www3.bcb.gov.br/sgspub/consultarvalores/telaCvsSelecionarSeries.paint. (Accessed February 5, 2012)
  23. See Leitão.
  24. A close view on the subject (albeit biased by definition) is Mr Cardoso’s autobiography, published in English: Cardoso, Fernando Henrique. The Accidental President of Brazil. New York: Public Affairs, 2007.
  25. The real was never technically pegged to the dollar. In its early years, there was a floor and a ceiling for daily prices of the currency – which granted some stability in foreign exchange market. As long as the price remained within the limits, the market worked as if rates were floating. However, if it crossed the limits, market operations were halted by the Central Bank and the market was closed – holding rates fixed. That is what has come to be known as the “floating bands” exchange rate regime in Brazil.
  26. In the early 1990s, Brazil’s GDP per capita was about 7,700 USD.
  27. The driving forces that cause this culture are manifold and their explanations, which delve into cultural and historical elements, go way beyond the scope of this article. For a more cultural based analysis, see Holanda, Sérgio Buarque. Raízes do Brasil. São Paulo: Cia das Letras, 1995.
  28. WM&O Expenses data are provided by Ipeadata, whereas an analysis of the number of ministries was summarised by Maciel, Vladimir, and Paulo Arvate. “Tamanho do Governo Brasileiro: Conceitos e Medidas.” RAC 14.1 (jan-fev 2010): 1-19.
  29. For instance, Henrique Meirelles, who chaired the Brazilian Central Bank during the whole Lula Administration (2003-2009), had just been elected as an MP for the Party of Brazilian Social Democracy (PSDB), which rivals Lula’s Workers’ Party (PT). Meirelles, a former CEO of BankBoston, was appointed to signal to markets that Lula would not harm the path of economic stability, in spite of his past closeness to far-left ideas and proposals.
  30. Lazzarini, Sérgio. Capitalismo de Laços: os Donos do Brasil e Suas Conexões. São Paulo: Campus, 2010.
  31. In a late chapter of this government-corporations relationship, in February 2012 the federal government privatised management of three of the most important airports in Brazil, aiming to modernization by the 2014 World Cup and 2016 Olympic Games. But, yet again, the winning consortium was an association between private corporations and quasi-government federal pension funds, in another example of privatizations alla Brazilian. For a theoretical reference, see Krueger, Anne O. “Government Failures in Development.” Working Paper n. 3340. Cambridge, MA: NBER, April 1990.
  32. Between 1998 and 2008, the number of public employees of São Paulo State, continuously governed by PSDB since 1995, rose 12.04%. See Moraes, Marcelo Viana Estevão de, Tiago Falcão Silva, and Patricia Vieira da Costa. “O mito do inchaço da força de trabalho do Executivo Federal.” Ministry of Planning. 2008. http://www.planejamento.gov.br/secretarias/upload/Arquivos/seges/forum_nacional_gp/Mito_Inchaco.pdf (accessed February 5, 2012).
  33. Da Silva, Luiz Inacio Lula. “Statement by H. E. Luiz Inácio Lula da Silva, President of the Federative Republic of Brazil, at the General Debate of the 63rd Session of the United Nations General Assembly.” New York, NY: Ministry of External Relations, Federative Republic of Brazil, 23 September 2008.
  34. Prebisch, Raúl. Capitalismo perifério: crisis y transformación. Ciudad de Mexico: UBC, 1981.
  35. See Haddad, Cláudio L. S. “Em favor de uma maior abertura.” In Brasil Globalizado, by Octávio Barros and Fábio Giambiagi, 125-157. São Paulo: Campus, 2008. Apart from some lonely voices, there's a general lack of recognition of the benefits of free trade and politicians are highly sympathetic towards corporate lobbyists arguing the case for protection. Not even benchmark case studies in Brazilian foreign trade helped to change this trend. During the 1980s, the federal government heavily subsidized the electronics industry in a late reflex of the ISI’s autarkic mind-set. The so-called "Law of Informatics" made it virtually impossible to import any electronic devices, ranging from sound systems to corporate servers, in an attempt to foster the development of such industry domestically. The backlash was twofold: firstly, subsidizing the industry by up to 80% of its exporting prices and closing up the domestic market to imports competition, rather than helping the industry develop, incentivized firms not to innovate as they had a somewhat guaranteed income regardless of efficiency and quality; secondly, it penalized all other industries which could profit from automatisation that were kept lagging behind from its international competitors.
  36. If the reader recalls the previous session, Collor was elected as being the outsider “maharaja hunter.”
  37. Data from Bonelli, Regis, and Armando Castelar Pinheiro. “Abertura e Crescimento Econômico no Brasil.” In Brasil Globalizado, by Octávio de Barros and Fábio Giambiagi, 89-124. São Paulo: Campus, 2008.
  38. Bhagwati makes a general comparison between the tariff pattern of developed and developing countries during the GATT period. See Bhagwati, Jagdish. Protectionism. Cambridge: MIT Press, 1988.
  39. In a recent example of the persistency of the autarkic dream, President Rousseff announced in early 2012 that due to a two-year deficit, her government would, in spite of seven years of surpluses in the immediate past, denounce the bilateral agreement with Mexico which allowed for lower tariffs in imports and exports for the auto industry.
  40. OECD. Education at a Glance 2011. OECD Indicators, Paris: OECD Publishing, 2011.
  41. Ibid.
  42. DataBank: World Development Indicators & Global Development Finance. World Bank – http://databank.worldbank.org/
  43. Technical note: ship’s draught is “the depth of water needed to float a ship,” according to Oxford’s English Dictionary.
Carlos A. B. Góes is a M.A. candidate for International Economics at The Johns Hopkins University’s SAIS Bologna Center. He earned a B.A. (’10) in International Relations and a minor in International Political Economy from the University of Brasilia. He co-authored “Repensando uma Cultura de Paz e Liberdade,” published by the University of Brasilia Press (2010).