The Brazilian Economy in 1994–1999: From the Real Plan to Inflation Targets

Abstract

This paper investigates the three main events that shook the Brazilian economy in 1994‐‐1999, a period that represented a turning point in the country's economic history. These events were the implementation of the Real Plan in 1994, the devaluation crisis in 1999, and the subsequent adoption of inflation targets. The principal contributions of this period were the drastic reduction of high inflation rates – the biggest problem in Brazil since the 1970s – and the reorientation towards economic growth, which were also supported by a privatisation programme, the openness of the economy to foreign capital, a trade liberalisation process, and the ongoing fiscal adjustments. Nevertheless, the period also left its scars, such as high budget and current account deficits, accompanied by a policy of elevated interest rates and, until 1999, a highly appreciated exchange rate. The paper concludes with a cautiously optimistic evaluation of the country's economic future based on the accomplishments of the 1990s and the possibility of a long‐term commitment to low inflation targets.