The Brazilian economy in 1994-1999: From the real plan to inflation targets

The period between 1994 and 1999 was a decisive moment for the Brazilian economy and the country as a whole. Some of the events that affected the economic scenario in the period were policy driven and others caused by macroeconomic imbalances and external shocks, such as the negative impact of international crises. The goal of this paper is to explore the three main turning points in the Brazilian economy during the decade: the implementation of the Real Plan in 1994; the devaluation crisis of 1999; and the subsequent adoption of the inflation target system. This paper is divided into five sections, including this brief introduction. Section 2 summarises the implementation of the Real Plan, with emphasis on the indexation mechanism, and highlights the twin-deficit deterioration of the post-Real. Section 3 describes the chronology of the 1999 devaluation crisis. Section 4 shows how the inflation target regime was adopted in Brazil and its partial results, mostly based on the recent (therefore limited) literature available on the Brazilian case. Finally, Section 5 draws concluding remarks.