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Brazil's Real Plan

Published online by Cambridge University Press:  01 October 1998

MANUEL A. R. DA FONSECA
MANUEL A. R. DA FONSECA
Affiliation:
Universidade Federal do Rio de Janeiro
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Abstract

One of the main conclusions of this commentary is that the Real plan – the stabilisation programme introduced in Brazil in July 1994 which was quite successful in bringing inflation down from the extremely high levels that prevailed before that period – did not attack the main cause of the country's inflation, that is, the large financial imbalance in the public sector. Instead, inflation was reduced in an indirect way, by freezing government-controlled prices and wages. In mid-1998, the programme still relies on extremely high interest rates and a tight control of the exchange rate. The main weakness of the plan is that, with the overvalued currency, trade deficits are accumulating. Also, very high interest rates have brought the economy to a halt and caused a sharp increase in the government debt.

Type
COMMENTARY
Information
Journal of Latin American Studies , Volume 30 , Issue 3 , October 1998 , pp. 619 - 639
Copyright
© 1998 Cambridge University Press

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Footnotes

I am greatly indebted to Werner Baer, Geoffrey Hewings, Fernando Cerqueira Lima and a referee for this Journal for their comments and suggestions on earlier versions of this article. Dr Lima also clarified some technical points on Brazil's financial system. The article reflects, nevertheless, only the author's own opinions.