Code : ECC0002

Year :
2004

Industry : General Business

Region : Brazil

Teaching Note:Not Available

Structured Assignment : Not Available

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Abstract: Brazil's economy was diversified with well-developed agricultural, mining, manufacturing and service sectors. But during the Great Depression in the 1930s, the prices of Brazil's exports fell. In the later years, Brazil experienced an increase in inflation. To control the inflation, the Minister of Finance, Fernando Henrique Cardoso launched the 'real' plan in January 1994. A new currency, the real, was introduced and it was pegged to the US dollar. Under the 'real' plan, the economy became stable. But the devaluation of the Mexican peso, the Asian crisis and the Russian crisis affected Brazil's economy. There were huge capital outflows and to maintain the exchange rate the government had to use its foreign reserves. In November 1998, Brazil received a financial package of $41.5 billion from the International Monetary Fund (IMF), but the continuous outflow of capital from Brazil forced the Brazilian government to float the real. Brazil's exports grew after the change in its exchange rate. In 2001 the terrorist attack on the US slowed down Brazil's economic growth. The IMF provided another package of $30 billion to Brazil. In 2003, Brazil's economy showed signs of recovery.

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Pedagogical Objectives:

  • To discuss the situation, which led to the Brazilian crisis and how the Brazilian economy recovered from this crisis.
    Keywords : Economic Crisis Case Study, Brazilian financial crisis, International Monetary Fund, Fernando Henrique Cardoso, One-sided peg, Fiscal austerity package plan, Inter-American Development Bank, Monetary policy, Depreciating currency, Brazilian economy, Fernando Collar De Mello, Financial rescue package, The real plan, stabilisation plan, Unit of real value (URV), Current account deficits, Mercosur

    Contents :
    » Background
    » The 'Real' Plan
    » The IMF Package
    » After the Float of the real


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