The Mexican debt crisis ends Brazil's access to international financial markets. An IMF austerity program enables Brazil to make its debt interest payments, but at the price of economic decline and increasing inflation. Inefficient state-owned enterprises further slow economic growth. A fall in domestic production brings a shift away from import substitution and toward a more open economic policy.
The government implements a series of economic stabilization plans to curb inflation. The value of exports falls as a result of the plans. The 1986 Cruzado Plan brings a brief economic growth spurt, but eventually fails due to the public deficit, an increase in the money supply, and a decline in crop output. During Latin America's "lost decade" of the 1980s, GDP grows 1.4 percent per year.
Collor's government implements trade liberalization measures, privatizes "strategic" state enterprises, primarily in heavy industry and infrastructure, and removes restrictions on free enterprise to increase competition and stimulate productivity. Combined with a stabilization package, the measures fail to redress the economy. GDP declines in both 1990 and '92, rising only 1.1 percent in between.
Lacking a strong economic strategy, President Franco slows the privatization program, focusing on a small number of cash-generating sales, and returns to a national economic plan. The state of São Paulo dominates the economy, producing 50 percent of Brazil's industrial output. Economic growth and stability are weak until Finance Minister Fernando Henrique Cardoso implements his Real Plan in 1994.
Now president, Cardoso develops a strong economic policy, cutting inflation and decreasing government spending in order to receive a major loan from the IMF. He deregulates the economy and privatizes state-owned enterprises in the energy, transportation, and communications sectors through the National Privatization Program. These measures bring limited economic growth, but greater stability.
Cuts in government expenditure and financial crisis in Russia and Asia spark capital flight from Brazil and an economic downturn. Brazil begins an IMF-led structural adjustment program with a US$41.5 billion package. The Southeast remains Brazil's economic "center", while the Northeast, still controlled by a landed oligarchy, remains poor. In the Amazon basin, development is controversial.
A currency devaluation in 1999 helps moderate the economic downturn. Cardoso's privatization policy brings much-needed foreign investment. The economy begins to recover in early 2000, registering 4 percent growth by year's end. A domestic energy crisis and a series of external shocks cause a setback in economic growth in 2001.
Brazil's economy is rocked by intense pressure on its currency, difficulties in arranging IMF support, and the effects of the global slowdown. The persistence of widespread poverty and frustration with reforms is a factor in Lula da Silva's election. He sets a populist tone promising food security and social progress, but attempts to maintain financial orthodoxy at the same time.
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