7 - The Brazilian Economy, 1994–2004: An Interim Assessment

Summary

INTRODUCTION

The Brazilian economic agenda after the successful introduction of the Plano Real in July 1994 continued to be dominated by efforts to stabilise the economy. The evolution of macroeconomic policies and the constraints they faced under the two administrations of Fernando Henrique Cardoso (1995–2002) is the central concern of this chapter, which is inevitably more speculative than its predecessors because it is based on a more restricted range of published research and lacks a sufficiently long time perspective.

At first, the main economic policy objective of the Cardoso administration was to consolidate the results of the Plano Real and to make sure that Brazil’s long experience of high inflation was really over. But soon the need to bring public accounts under control and to make a sizable external adjustment would become the main challenges. A major balance of payments crisis early in 1999, immediately after Cardoso’s re-election, imposed much overdue drastic changes in economic policy. Further disturbances occurred in 2002, the last year of Cardoso’s second term, as financial markets reflected fears that economic policy could be reversed with the likely victory of the opposition presidential candidate, Luiz Inácio Lula da Silva, the trade union leader who had emerged from the bitter fights of organised labour against the military dictatorship in the late 1970s and early 1980s, and one of the principal founders of the Partido dos Trabalhadores (PT) – Workers’ Party – in 1980. He had come second to Collor de Mello in the presidential election of 1989 and second to Cardoso in the elections of 1994 and 1998.