The Political Economy of Macroeconomic Policy Reform in Latin America The Distributive and Institutional Context
The Distributive and Institutional Context
Chapter 4: Brazil: The Market Enhancing Role of Political Economy Factors
4. Brazil: the market enhancing role of political economy factors Research in institutional economics must focus on actual rules rather than on conceptually ambiguous assessment of institutional outcomes. Glaeser et al. (2004, p. 26) I. THE LULA FEARS IN REVERSE Normally, distributive politics and political economy restrictions limit the role of markets and of competition in inducing eﬃcient private and public outcomes. The case of Brazil since the mid-1990s may be the beginning of the reverse situation. In this country political economy factors appear to be the ones that increasingly enhance or protect the role of markets and restrict political opportunism. In 1994 with the Real Plan1 this country ﬁnally tamed hyperinﬂation, bringing it down from 2000 per cent in that year to less than 4 per cent in 1998. Then in 1999 Brazil adopted an integrated macroeconomic policy regime anchored on inﬂation targeting which allowed it to manage a serious economic crisis successfully. Although there is still ample room for further macroeconomic improvement it appears that the public at large wants to preserve the lower inﬂation rates observed during the last ten years. Low inﬂation seems to have politically redeemed orthodox macroeconomic management in the eyes of a public hitherto very distrustful of markets. Early after having won the elections in 2002, the incoming Lula administration ﬂirted with some populist policy postures which had to be quickly abandoned when market signals (spreads and the like) indicated the imminent costs of such an overture. The...
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