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Brazil - The 1990-94 Period, The 90's

 
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Brazil - The 1990-94 Period



The 1990-94 Period

The first post-military-regime president elected by popular suffrage, Fernando Collor de Mello (1990-92), was sworn into office in March 1990. Facing imminent hyperinflation and a virtually bankrupt public sector, the new administration introduced a stabilization plan, together with a set of reforms, aimed at removing restrictions on free enterprise, increasing competition, privatizing public enterprises, and boosting productivity.

Heralded as a definitive blow to inflation, the stabilization plan was drastic. It imposed an eighteen-month freeze on all but a small portion of the private sector's financial assets, froze prices, and again abolished indexation. The new administration also introduced provisional taxes to deal with the fiscal crisis, and took steps to reform the public sector by closing several public agencies and dismissing public servants. These measures were expected not only to swiftly reduce inflation but also to lower inflationary expectations.

However, few of the new administration's programs succeeded. Major difficulties with the stabilization and reform programs were caused in part by the superficial nature of many of the administration's actions and by its inability to secure political support. Moreover, the stabilization plan failed because of management errors coupled with defensive actions by segments of society that would be most directly hurt by the plan.

After falling more than 80 percent in March 1990, the GPI's monthly rate of growth began increasing again. The best that could be achieved was to stabilize the GPI at a high and slowly rising level. In January 1991, it rose by 19.9 percent, reaching 32 percent a month by July 1993. Simultaneously, political instability increased sharply, with negative impacts on the economy. The real GDP declined 4.0 percent in 1990, increased only 1.1 percent in 1991, and again declined 0.9 percent in 1992 (see table 7, Appendix).

President Collor de Mello was impeached in September 1992 on charges of corruption. Vice President Itamar Franco was sworn in as president (1992-94), but he had to grapple to form a stable cabinet and to gather political support. The weakness of the interim administration prevented it from tackling inflation effectively. In 1993 the economy grew again, but with inflation rates higher than 30 percent a month, the chances of a durable recovery appeared to be very slim. At the end of the year, it was widely acknowledged that without serious fiscal reform, inflation would remain high and the economy would not sustain growth. This acknowledgment and the pressure of rapidly accelerating inflation finally jolted the government into action. The president appointed a determined minister of finance, Fernando Henrique Cardoso, and a high-level team was put in place to develop a new stabilization plan. Implemented early in 1994, the plan met little public resistance because it was discussed widely and it avoided price freezes.

The stabilization program had three stages: the introduction of an equilibrium budget mandated by the National Congress (Congresso Nacional; hereafter, Congress); a process of general indexation (prices, wages, taxes, contracts, and financial assets); and the introduction of a new currency, the real (for value of the real (R$)--click here), pegged to the dollar. The legally enforced balanced budget would remove expectations regarding inflationary behavior by the public sector. By allowing a realignment of relative prices, general indexation would pave the way for monetary reform. Once this realignment was achieved, the new currency would be introduced, accompanied by appropriate policies (especially the control of expenditures through high interest rates and the liberalization of trade to increase competition and thus prevent speculative behavior).

By the end of the first quarter of 1994, the second stage of the stabilization plan was being implemented. Economists of different schools of thought considered the plan sound and technically consistent.

Data as of April 1997



 



 


About Brazil
Table A. Selected Acronyms and Abbreviations
Table B. Chronology of Important Events
Geography
Society
Economy
Transportation and Communications
Government and Politics
National Security


Historical Setting

The Society and Its Environment

The Economy

Historical Background and Economic Growth

- The Colonial Period
The Sugar Cycle, 1540-1640
The Eighteenth-Century Gold Rush

- The Economy at Independence, 1822
- The Coffee Economy, 1840-1930
- A Period of Sweeping Change, 1930-45
- Import-Substitution Industrialization, 1945-64
- Stagnation and Spectacular Growth, 1962-80
Stagnation, 1962-67
Spectacular Growth, 1968-73

Growth with Debt, 1974-80

- Stagnation, Inflation, and Crisis, 1981-94
The 1981-84 Period
The 1985-89 Period

The 1990-94 Period

The Labor Force and Income Levels
- Employment and Earnings
Employment

Earnings

- Inequality and Poverty
Structure of Production
- Agriculture
- Livestock
- Fishing
- Industry
- Mining
- Energy
Electric Power
Petroleum
Natural Gas
Nuclear Power

- The Services Sector
Transportation
Highways

Railroads
Subways
Airports
Ports
Inland Waterways
Merchant Marine
Telecommunications
Tourism

Privatization
Exchange-Rate and Balance of Payments Policies
- Exchange Rates and Foreign Trade
- Capital Flows and the External Debt
Fiscal and Monetary Policy, the Public Sector, and Inflation
- Fiscal Trends in the 1980s
- Pressures on Public-Sector Expenditures in the 1980s
- Fiscal Deficits and Inflation
Brazil's Real Plan
Trade Policies
Trade Patterns and Regional Economic Integration
Economic Outlook

Government and Politics

National Security

Science and Technology

Brazil Travel and Tourism
-
Belo Horizonte
- Fernando de Noronha
- Foz do Iguaçu
- Porto Alegre
- Rio de Janeiro
- Salvador Bahia
- São Paulo

Brazil General Information Center

Bahia Resort Hotels
Brazilian Consulate
Brazilian Currency
Capoeira
Carnival of Brazil
Dictionary -Transltation
Flights to Brazil
Information About Brazil
Map of Brazil
Travel to Brazil
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