Brazil's quasi-stagnation and the growth cum foreign savings strategy
Luiz Carlos Bresser-Pereira
International Journal of Political Economy, 32(4) 2004: 76-102. Paper presented to the panel "Alternative Development Strategies for Latin America" at the UNCTAD XI Conference, São Paulo, June 12-18, 2004. This paper is an actualization and better structuration of "Financiamento para o Subdesenvolvimento: O Brasil e o Segundo Consenso de Washington" (2002).
Abstract. While the Cardoso administration (1995-2002) was successful in defining and implementing social policy, its economic outcomes were frustrating. In this administrations eight years the investment rate did not increase and income per capita growth lagged, while unemployment, the public debt, and the foreign debt increased substantially. This poor economic performance may be explained by three chained causes: a mistake in agenda setting, the adoption of the 'Second Washington Consensus, and the alienation of elites. The decision of setting high inflation as the major problem to be tackled instead of achieving equilibrium in foreign accounts represented a major macroeconomic mistake, which can be explained by the Second Washington Consensus. This consensus proposed in the 1990s that highly indebted countries should grow counting on foreign savings, although this is not the experience among OECD countries. The outcome was to evaluate the real, to artificially increase wages and consumption, so that instead of growth what we have is increased indebtedness. Why was this flopped strategy adopted? Rich countries interests are not difficult to guess. On the part of Brazil, the only explanation is Brazilian elites alienation in relation to the countrys national interest. As a final outcome, the Cardoso administration ends with another balance of payments crisis.