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The Plano Real – How a virtual currency solved Brazil’s Hyperinflation By: SHRUTI CHILLURE (Dr. Ambedkar Institute of Management and Studies, Nagpur) INTRODUCTION Brazil has been the world's largest producer of coffee for the last 150 years. Being the largest national economy in Latin America, the world’s ninth-largest economy, and the eighth largest in purchasing power parity (PPP), it is hard to believe that less than three decades ago the country was battling crippling inflation. The transition was not smooth. Brazilian economy has always been a series of economic roller coaster. After a decade of failed attempts at stabilizing the economy, some of which aggravated the problem, in 1992, Brazil managed to formulate a successful strategy which reduced from 303% YoY in the early eighties to a single digit in 1998. CAUSES: 1. MILITARY DICTATORSHIP Brazil had always been under military rule. In fact, the country had seen two dictatorship periods: During Vargas Era (1937-1945) and during the military rule (1964-1985) under the Brazilian military government. Juscelino Kubitschek de Oliveira, 21st president of Brazil during the dictatorship era, undertook large-scale projects under Target Plan(1956) and National Development Plan (1972), which focused on improving the country’s infrastructure. Some of these large public projects included the construction of The Itaipu Dam, Trans-Amazonian Highway, and Rio-Niteroi Bridge. The government believed that investing in such projects could spur private and foreign investment which would, in turn, result in the growth of the country’s economy. Besides relying on government funds, the plan additionally relied on large foreign investments. These initiatives resulted in massive growth in the economy of the country but not without a price.: the cost of living increased with the rising exchange rate, while Brazil’s enormous foreign debt increased. That process also led to a surge in the number of public banks, to finance their fiscal deficits, and to the creation of some of the largest Brazilian SOEs, such as (Joao Ayres 2019) 2.
OIL CRISIS
Brazil relied heavily on oil imports during the 1970s. As the oil prices quadrupled during the first oil crisis (1973), the country found itself in a pickle. Although it presented challenges to the continuation of committed high-end infrastructural projects, the Brazilian government decided to carry forward even if it meant borrowing from abroad lenders and increasing external debt. During the oil crisis, one of the main goals of the country was to reduce dependence on oil imports by focusing on country-owned oil projects. To wean the nation away, the government spent a considerable amount on research and development of alternative energy sources.
