Brazil’s Macroeconomic Policies and Capital Flows in the 1990s
During the period between the late 1980s and the early 1990s, Latin America’s economic concerns experienced a turning point since various leaders, policy makers, and multilateral institutions agreed upon the need to privatize projects implemented by the state, balance government budgets, and liberalize trade. Because of the Mexican peso crisis in 1994, economists and finance ministers in Washington replaced Chile and Mexico with Brazil and Argentina as models for the new regime since macroeconomic developments in these countries were affected significantly by capital flows. Environments that are free from crisis may be subject to the following exchange rate regimes: the target exchange rate that evades real appreciation and the floating exchange rate that transfers risks to private portfolios. Since Brazil has neither, this chapter attempts to point out how the current macroeconomic strategy imposed by Brazil is costly.
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