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Neoliberal economic policies in Brazil (1994–2005): Cardoso, Lula and the need for a democratic alternative

2006; Taylor & Francis; Volume: 11; Issue: 1 Linguagem: Inglês

10.1080/13563460500494933

1469-9923

Maria de Lourdes Rollemberg Mollo, Alfredo Saad‐Filho,

Brazilian History and Foreign Policy

Click to increase image sizeClick to decrease image size Acknowledgments The authors are grateful for the generous comments of two anonymous referees. MLR Mollo acknowledges the financial support of CNPq. Notes 1. This article was completed in May 2005. 2. Governo do Brasil, Exposição de Motivos n. 393 do Ministro da Fazenda (Congresso Nacional, 1993). See also Edmar Bacha, 'Plano Real: Uma Segunda Avaliação', in IPEA/CEPAL (eds), O Plano Real e Outras Experiências Internacionais de Estabilização (IPEA, 1997), pp. 34–62; Rudiger Dornbusch, 'Brazil's Incomplete Stabilization and Reform', Brookings Papers on Economic Activity, No. 1 (1997), pp. 367–94; Alfredo Saad-Filho & Eduardo Maldonado Filho, 'Economia Brasileira: da Heterodoxia ao Neomonetarismo', Indicadores Econômicos, Vol. 26, No. 3 (1998), pp. 87–103. 3. For an overview of neoliberal economic policies, see Ben Fine, Costas Lapavitsas & Jonathan Pincus (eds), Development Policy in the Twenty-first Century: Beyond the Post-Washington Consensus (Routledge, 2001); Ben Fine & Colin Stoneman, 'Introduction: State and Development', Journal of Southern African Studies, Vol. 22, No. 1 (1996), pp. 5–26; Charles Gore, 'The Rise and Fall of the Washington Consensus as a Paradigm for Developing Countries', World Development, Vol. 28, No. 5 (2000), pp. 789–804; Alfredo Saad-Filho & Deborah Johnston (eds), Neoliberalism: A Critical Reader (Pluto Press, 2005). 4. See Luiz C. Bresser-Pereira, Economic Crisis and State Reform in Brazil (Lynne Rienner, 1996). 5. From this viewpoint economic fluctuations are exogenous and transitory. They are generally due to misguided government intervention or irrational private (for example, herd) behaviour, resulting from market imperfections. Crises triggered by bubbles are analysed by Roger Farmer, The Macroeconomics of Self-Fulfilling Prophecies (MIT Press, 1993); Ronald McKinnon, Money and Capital in Economic Development (Brookings, 1973) argues that financial repression undermines growth performance; Ronald McKinnon, The Order of Economic Liberalisation (Johns Hopkins University Press, 1993) and Paul Krugman, 'What Happened to Asia?' (1998), http://web.mit.edu/krugman, review the potential consequences of regulatory failure and moral hazard for the financial markets. 6. Maria de Lourdes R. Mollo, Maria Luíza F. Silva & Thomas Torrance, 'Money and Exchange-Rate Regimes: Theoretical Controversies', Economia Contemporânea, Vol. 5, No. 1 (2001), pp. 5–47. 7. Philip Arestis & Malcolm Sawyer, 'Inflation Targeting: A Critical Appraisal', Greek Economic Review (forthcoming 2006). 8. Philip Arestis & Malcolm Sawyer, 'New Labour, New Monetarism', European Labour Forum, Vol. 20, No. 1 (1998), pp. 7–21. 9. See, for example, Philip Arestis & Murray Glickman, 'Financial Crisis in Southeast Asia: Dispelling Illusions the Minskyan Way', Cambridge Journal of Economics, Vol. 26, No. 2 (2002), pp. 237–60, Gabriel Palma, 'Three and a Half Cycles of "Mania, Panic and [Asymmetric] Crash": East Asia and Latin America Compared', Cambridge Journal of Economics, Vol. 22, No. 6 (1998), pp. 789–808; Maria de Lourdes R. Mollo & Adriana Amado, 'Globalização e Blocos Regionais: Considerações Teóricas e Conclusões de Política Econômica', Estudos Econômicos, Vol. 31, No. 1 (2001), pp. 127–66. 10. See François Chesnais, 'Mondialisation Financière et Vulnérabilité Systémique', in François Chesnais (ed.), La Mondialisation Financiére: Genèse, Coût et Enjeux (Syros, 1996), pp. 251–95; Robert Guttman, How Credit-Money Shapes the Economy – The United States in Global System (M. E. Sharpe, 2000). 11. See Dominique Plihon, 'A Ascenção das Finanças Especulativas', Economia e Sociedade, No. 5 (1995), pp. 61–78 and Suzanne de Brunhoff, 'L'Instabilité Monétaire Internationale', in Chesnais (ed.), La Mondialisation Financiére, pp. 33–58. 12. See Paul Cammack, 'Sign of the Times: Capitalism, Competitiveness, and the New Face of Empire in Latin America', Socialist Register 2005 (Merlin, 2005), pp. 256–70; and Mollo & Amado, 'Globalização e Blocos Regionais'. 13. See Adriana Amado, 'The Regional Impact of the Internationalization of the Financial System: The Case of Mercosul', in Philip Arestis, Meghnad Desai & Sheila Dow (eds), Methodology, Microeconomics and Keynes, Vol. 2 (Routledge, 2001), pp. 351–73; Sheila Dow, Money and the Economic Process (Edward Elgar, 1993). 14. See François Chesnais, La Mondialisation du Capital (Syros, 1994); Mollo & Amado, 'Globalização e Blocos Regionais'. 15. See Gérard Duménil & Dominique Lévy, 'The Neoliberal Counter-Revolution', in Saad-Filho & Johnston, Neoliberalism: A Critical Reader, pp. 9–19; and Pierre Salama, 'La Financiarisation Excluante', in Chesnais, La Mondialisation Financiére, pp. 213–50. The deteriorating distribution of income in the world economy is documented by Branko Milanovic, 'True World Income Distribution, 1988 and 1993: First Calculation Based on Household Surveys Alone', Economic Journal, Vol. 112, No. 476 (2002), pp. 51–92. 16. See also Guillermo Calvo, 'The Management of Capital Flows: Domestic Policy and International Cooperation', in G. K. Helleiner (ed.), The International Monetary and Financial System (Macmillan, 1996), pp. 67–89; Guillermo Calvo, Leonardo Leiderman & Carmen Reinhart, 'Inflows of Capital to Developing Countries in the 1990s', Journal of Economic Perspectives, Vol. 10, No. 2 (1996), pp. 123–39; Martin Feldstein & Charles Horioka, 'Domestic Savings and International Capital Flows', Economic Journal, Vol. 90, No. 358 (1980), pp. 314–29. 17. See Victoria Chick, 'Finance and Investment in the Context of Development: A Post-Keynesian Perspective', in Joseph Halevi & Jean-Marc Fontaine (eds), Restoring Demand in the World Economy (Edward Elgar, 1998), pp. 47–69; Rogério Studart, Investment Finance in Economic Development (Routledge, 1995). 18. For an analysis of Brazilian inflation along those lines, see Alfredo Saad-Filho & Maria de Lourdes R. Mollo, 'Inflation and Stabilization in Brazil: A Political Economy Analysis', Review of Radical Political Economics, Vol. 34, No. 2 (2002), pp. 109–35. 19. For a review of the real plan, see Saad-Filho & Mollo, 'Inflation and Stabilization in Brazil'. De-indexation is the abolition of 'automatic' price increases in response to the latest inflation index (or variations in the exchange rate). A typical example is the determination of wages, in conditions of high inflation, by last month's nominal wage, marked up by the current month's inflation rate. Although indexation can help to protect real incomes, it also perpetuates past inflation (inflation inertia), making it difficult to reduce inflation in the long term. 20. See Alfredo Saad-Filho, 'The Political Economy of Neoliberalism in Latin America', in Saad-Filho & Johnston, Neoliberalism, pp. 113–9. 21. See Alfredo Saad-Filho & Lecio Morais, 'The Costs of Neomonetarism: The Brazilian Economy in the 1990s', International Papers in Political Economy, Vol. 7, No. 3 (2000), pp. 1–39. 22. See Alfredo Saad-Filho & Lecio Morais, 'The Costs of Neomonetarism: The Brazilian Economy in the 1990s', in Philip Arestis & Malcolm Sawyer (eds), Neo-Liberal Economic Policy: Critical Essays (Edward Elgar, 2004), pp. 158–93. 23. Bacha, 'Plano Real: Uma Segunda Avaliação'; Dornbusch, 'Brazil's Incomplete Stabilization and Reform'. 24. CEPAL, Anuario Estadístico de América Latina y el Caribe (ECLAC, 2003), table 293. 25. Saad-Filho & Morais, 'The Costs of Neomonetarism'. 26. Conjuntura Econômica, March 2005, statistical appendix, p. XI. 27. For a similar interpretation of the neoliberal transition in the advanced economies, see Gérard Duménil & Dominique Lévy, Capital Resurgent: Roots of the Neoliberal Revolution (Harvard University Press, 2004). 28. For a detailed account of the crisis, see Edmund Amann & Werner Baer, 'The Illusion of Stability: The Brazilian Economy under Cardoso', World Development, Vol. 28, No. 10 (2000), pp. 1805–19; Lecio Morais, Alfredo Saad-Filho & Walter Coelho, 'Financial Liberalisation, Currency Instability and Crisis in Brazil: Another Plan Bites the Dust', Capital & Class, No. 68 (1999), pp. 9–14; Maria de Lourdes R. Mollo & Maria Luíza F. Silva, 'A Liberalização do Câmbio no Brasil: Revisitando a Discussão dos Pressupostos Teóricos Embutidos nas Prescrições Cambiais Alternativas', Estudos Econômicos, Vol. 29, No. 2 (1999), pp. 189–227. 29. See Saad-Filho & Morais, 'The Costs of Neomonetarism'. 30. Bank profit rates in Brazil are usually around 11 per cent. In January 1999, the profit rate of several large banks reached between 200 and 400 per cent. Total bank profits in 1998 were R$1.8 billion; in the month of January 1999, these profits reached R$3.3 billion (Folha de S. Paulo, 6 March 1999, p. 2–2). George Soros famously declared that the devaluation of the real had only a small impact on the international financial system because it had been widely anticipated, and because Brazil offered protection mechanisms unavailable to investors elsewhere. 31. See Mollo & Silva, 'A Liberalização do Câmbio no Brasil'; Alfredo Saad-Filho & Lecio Morais, 'Neomonetarist Dreams and Realities: A Review of the Brazilian Experience', in Paul Davidson (ed.), A Post Keynesian Perspective on 21st Century Economic Problems (Edward Elgar, 2002), pp. 29–55. 32. Luiz C. Bresser-Pereira, 'Macroeconomia do Brasil pós-1994', Análise Econômica, Vol. 21, No. 40 (2003), pp. 7–38. 33. Michel Aglietta, La Fin des Devises Clés: Essai sur la Monnaie Internationale (La Découverte 1986). 34. See Mariano Laplane & Fernando Sarti, 'O Investimento Direto Estrangeiro no Brasil nos Anos 90: Determinantes e Estratégias', in Daniel Chudnovsky (ed.), Investimentos Externos no Mercosul (Papirus, 1999), pp. 125–79. 35. SOBEET Report, Folha de S.Paulo 5 September 2003. 36. Guillermo Calvo, Leonardo Leiderman & Carmen Reinhart, 'Capital Inflows and Real Exchange Rate Appreciation in Latin America', IMF Staff Papers, Vol. 40, No. 1 (1993), pp. 108–51. 37. See Palma, 'Three and a Half Cycles'; and Anwar Shaikh, 'Foreign Trade and the Law of Value: Part I', Science & Society, Vol. 43, No. 4 (1979), pp. 281–302, and 'Foreign Trade and the Law of Value: Part II', Science & Society, Vol. 44, No. 1 (1980), pp. 27–57. 38. For a similar analysis in the case of South Korea, see Arestis & Glickman, 'Financial Crisis in Southeast Asia' and Ha-Joon Chang, 'The Triumph of the Rentiers?' Challenge, Vol. 43, No. 1 (2000), pp. 105–24. 39. Bresser-Pereira, 'Macroeconomia do Brasil pós-1994'. 40. Mário Pochmann, O Trabalho sob Fogo Cruzado: Exclusão, Desemprego e Precarização no Final do Século (Contexto, 1999). 41. São Paulo, Rio de Janeiro, Belo Horizonte, Porto Alegre, Recife and Salvador. 42. http://www.ipeadata.gov.br. 43. World Bank, Inequality in Latin American and the Caribbean: Breaking with History?, 1 April 2004, p. 400, http://www-wds.worldbank.org/default.jsp?site = wds. 44. World Bank, World Development Indicators, CD Rom, 2003. 45. Brazil – Letter of Intent, Memorandum of Economic Policies, and Technical Memorandum of Understanding, August 29, 2002, http://www.imf.org/external/np/loi/2002/bra/04/index.htm, paragraph 26 (emphasis added). 46. In their Article IV consultation with Brazil in March 2005, the IMF executive board 'welcomed Brazil's impressive economic achievements over the last two years, and the remarkable track record of performance … which reflected the [Brazilian] authorities' continued pursuit of strong macroeconomic policies and steady progress with structural reforms … [IMF] Directors [also] congratulated the authorities for consistently achieving high primary fiscal surpluses … Looking ahead, the authorities' reform agenda – including central bank autonomy, reform of the state-level VAT, and further measures to enhance the business environment – covers important areas. Other critical reforms would include measures to increase budget flexibility, address the large remaining imbalances in the pensions system, promote financial intermediation, and reduce labor market informality through reforms of the labor code, so as to substantially increase flexibility in labor contracts' (http://www.imf.org/external/np/sec/pn/2005/pn0541.htm#P25_355#P25_355). IMF first deputy managing director, Anne Krueger, added that the 'impressive track record of program implementation [under the stand-by arrangement], together with the continued pursuit of sound macroeconomic policies and steady progress with structural reforms are clearly paying off … The central bank's steady tightening of monetary policy in recent months has been prudent … Reflecting recent developments, financial market sentiment is very positive … The government's agenda for 2005 includes important tax reforms and further measures to strengthen the business environment' (http://www.imf.org/external/np/sec/pr/2005/pr0564.htm). 47. See, for example, http://www.whitehouse.gov/news/releases/2003/06/20030620-3.html and http://www.state.gov/secretary/rm/2005/43863.htm. 48. Luiz C. Bresser-Pereira, 'Macroeconomia Pós-Plano Real: As Relações Básicas', in João Sicsú, Luiz Fernando de Paula & Renaut Michel (eds), Novo-Desenvolvimentismo – Um Projeto Nacional de Crescimento com Eqüidade Social (Manole, 2005), pp. 3–48. 49. See Saad-Filho & Morais, 'The Costs of Neomonetarism'. 50. Average bank spreads in Brazil reached 43.7 per cent in 2003. This is significantly higher than elsewhere; for example, Argentina (15.4 per cent), Chile (3.5 per cent), the Euro area (3.1 per cent), India (5.4 per cent), Mexico (0.7 per cent), Russia (9.1 per cent), South Korea (2.2 per cent) and the USA (3.0 per cent). See http://www.iedi.org.br. 51. Pérsio Arida, Edmar Bacha & André Lara-Resende, High Interest Rate in Brazil: Conjectures on the Jurisdictional Uncertainty, unpublished manuscript, 2004. 52. Bresser Pereira, 'Macroeconomia Pós-Plano Real'. 53. For a review, see Manuel R. Agosín & Diana Tussie (eds), Trade and Growth: New Dilemmas in Trade Policy (Macmillan, 1993); Alice Amsden, 'Bringing Production Back In – Understanding Government's Economic Role in Late Industrialization', World Development, Vol. 25, No. 4 (1997), pp. 469–80; Alice Amsden, The Rise of the Rest: Challenges to the West from Late Industrializing Economies (Oxford University Press, 2001); Ha-Joon Chang, The Political Economy of Industrial Policy (Macmillan, 1994); Ha-Joon Chang, Globalisation, Economic Development and the Role of the State (Zed Books, 2003); Ha-Joon Chang & Ilene Grabel, Reclaiming Development: An Alternative Economic Policy Manual (Zed Books, 2004); Gary Gereffi & Donald Wyman (eds), Manufacturing Miracles: Paths of Industrialization in Latin America and East Asia (Princeton University Press, 1990). 54. Sebastián Barros, 'Kirchner's Argentina: Between Populism and Centre-Left', paper presented at the Conference, Left of Centre Governments in Latin America: Current Prospects and Future, Institute for the Study of the Americas, University of London, 18 March 2005. 55. For an overview of this approach to industrial policy, see Amsden, 'Bringing Production Back In'; Chang, The Political Economy of Industrial Policy; Ha-Joon Chang, Kicking Away the Ladder? Policies and Institutions for Economic Development in Historical Perspective (Anthem Press, 2002); Sonali Deranyiagala, 'From Washington to Post-Washington: Does It Matter for Industrial Policy?', in Fine et al., Development Policy in the Twenty-first Century, pp. 80–98; Dic Lo, 'Techno-Economic Paradigm Versus the Market: On Recent Theories of Late Industrialization', Economy and Society, Vol. 24, No. 3 (1995), pp. 443–70. 56. For a case study, see Vivek Chibber, Locked in Place: State-Building and Late Industrialization in India (Princeton University Press, 2003). 57. See the papers in Análise Econômica, Special issue on 'The Lula Administration', Vol. 21, No. 40 (2003) and João Sicsú, José Luís Oreiro & Luiz Fernando de Paula, Agenda Brasil: Políticas Econômicas para o Crescimento com Estabilidade de Preços (Manole, 2003). For an overview of the international literature see, among others, Hulya Dagdeviren, Rolph van der Hoeven & John Weeks, 'Poverty Reduction with Growth and Redistribution', Development and Change, Vol. 33, No. 3 (2002), pp. 383–413; Arthur MacEwan, Neo-Liberalism or Democracy? Economic Strategy, Markets, and Alternatives for the 21st Century (Zed Books, 1999); J. Mohan Rao, The Possibility of Pro-Poor Development: Distribution, Growth and Policy Interactions, unpublished manuscript, 2002; José A. Ocampo, 'Rethinking the Development Agenda', Cambridge Journal of Economics, Vol. 26, No. 3 (2002), pp. 393–407. 58. Lecio Morais & Alfredo Saad-Filho, 'Snatching Defeat from the Jaws of Victory? Lula, the Workers' Party and the Prospects for Change in Brazil', Capital & Class, No. 81 (2003), pp. 17–23; Alfredo Saad-Filho, 'New Dawn or False Start in Brazil? The Political Economy of Lula's Election', Historical Materialism, Vol. 11, No. 1 (2003), pp. 3–21. 59. See Maria da Conceição Tavares & Luiz Gonzaga Belluzzo, 'Desenvolvimento no Brasil – Relembrando um Velho Tema', in Ricardo Bielschowsky & Carlos Mussi (eds), Políticas para a Retomada do Crescimento: Reflexões de Economistas Brasileiros (IPEA/CEPAL, 2002), pp. 3–48.