That’s the subject of my latest Bloomberg column, and here’s one excerpt, starting with the reality of Brazil’s hyperinflation in the early 1990s:
Fortunately, economists and other reformers came to the rescue and designed an effective monetary stimulus program. Brazil first created a virtual currency, called the URV, and exchanged contracts and values for the new accounting unit. Next, a new currency, real, was introduced as a value equal to the URV and roughly equivalent to the US dollar. That created hope for a new and stable currency.
An important part of the reforms was a reliable financial stability system. Brazil did not suffer from hyperinflation for no reason – rather, the newly printed money was needed to meet promised government spending. So to make the numbers add up without hyperinflation, the Brazilian government made budget cuts, sold off some assets, transferred some jobs to local governments, and made constitutional and legislative promises about a balanced budget…
However, the ending of this story is not very happy. For several years Brazil’s economy has been growing below 1%, although it recently rose above 2%. The country has abundant natural resources, abundant human talent, some excellent companies and universities, and has no natural enemies of the country. However, its economic growth was moderate. Brazil should be able to achieve annual growth of 4% to 6%.
The causes of this disappointing growth are varied and debatable. Possible culprits include corruption, excessive protectionism, an economy heavily dependent on natural resources, an unreliable education system and, perhaps, a loss of economic power. In the golden years of the late 1960s and early 1970s, Brazil had very high growth rates, reaching 14% in 1973, so great performance is possible.
It is worth pondering.
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