Essays in Honor of Lance Taylor
Edited by Amitava Krishna Dutt
Chapter 10: Brazil's Plano Real: a view from the inside
10. Brazil’s Plano Real: a view from the inside Edmar L. Bacha1 1 INTRODUCTION Launched under peculiar political conditions, in the last year of a weak and divided government, and without the support of the International Monetary Fund, the 1994 Real Plan succeeded in doing away with Brazil’s chronically high inﬂation, with a homegrown monetary reform program. Brazilian academics associated with the Department of Economics of the Catholic University of Rio de Janeiro, where Lance Taylor taught in the early 1980s, conceived and implemented the Real Plan. Taylor’s neostructuralist macroeconomics was a permanent source of inspiration for this group of academics. This chapter contains an analytical description of the Real Plan in the 1993–96 period. It starts in the next section with the economic and political context under which it was developed. There follows in section 3 an explanation of the three stages of the plan. Section 4 details the main features of the monetary reform: a pre-announced sudden stabilization, preceded by a full indexation phase, introduced without a price freeze, a capital levy on ﬁnancial assets, or an economic recession, and followed by ﬂexible exchange rate and monetary policies. The initial success of the plan was so complete that its political mastermind, Fernando Henrique Cardoso, became Brazil’s president. As described in section 5, this was just in time to cope with the impact of the Mexican balance of payment crisis and the growing macroeconomic disequilibria that resulted from the Plan’s introduction. During 1995, the government introduced harsh...
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