#222 A Turning Point in the Brazilian Debt Crisis: A Memoir
By Luiz Carlos Bresser Pereira
From the Paper
When I took office as finance minister [of Brazil] on 29 April 1987, the economic crisis was serious and acute. I had been invited to accept the position as a result of my experience in the government of the State of Sao Paulo and my active participation in the Partido do Movimento Democratico Brasileiro (PMDB), the political party that had led the transition to democracy two years earlier. Although I was critical of the populist and nationalist views that dominated Brazilian politics at that moment, it did not mean that I had adhered to economic orthodoxy. In the early 1980s I had actively participated in the formulation of the neostructuralist theory of inertial or chronic inflation, which diverges from mainstream economics because (1) it views this type of inflation as autonomous from demand, i.e., consistent with recession; (2) it views the money supply as passive or endogenous; and (3) it relates current inflation with the phased process of price and wage increases and with the distributive conflict between economic agents. But it was clear to me that the Brazilian economy needed fiscal discipline and market-oriented reforms. These reforms were particularly necessary because the state faced both a fiscal crisis and a crisis in its mode of intervention (the import substitution strategy).
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