by John Williamson, Peterson Institute for International Economics
View full document [pdf]
The macroeconomic regime implanted in Brazil during the second administration of Fernando Henrique Cardoso, and largely maintained by his successor, is typical of those of the advanced countries. The anchor is provided by an inflation-targeting regime (with a target inflation rate somewhat greater than in most advanced countries, of 4.5 percent a year, with a band around it of +/–2 percent). The exchange rate floats. The float is often described as free, but given the extent of recent reserve accumulation it would not qualify as a free float as understood by most economists. Fiscal policy has actually been more ambitious under the Lula regime, resulting for a time in a primary surplus of at least 4.25 percent of GDP (subsequently reduced to allow for a higher rate of public investment, and also temporarily reduced further to help combat the crisis). Monetary policy has then been directed at achieving the inflation target given fiscal policy, which—given history—has implied maintaining high interest rates.
While the majority of the framework in Brazil is acceptable, it is a bit too laissez-faire in that the exchange rate should be targeted at a rate consistent with macroeconomic balance, which the authorities should treat as a reference rate.
Op-ed: Brazil's Investment: A Maze in One's Own Navel April 16, 2015
Op-ed: Brazilian Sclerosis April 9, 2015
Op-ed: The Rescue of Brazil April 4, 2015
Op-ed: Brazil's Inertial GDP April 3, 2015
Book: How Latin America Weathered the Global Financial Crisis January 2014
Working Paper 03-1: Debt Sustainability, Brazil, and the IMF February 2003
Policy Brief 02-7: Is Brazil Next? August 2002