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Restructuring the Economic Policy Framework in Brazil: Genuine or Gattopardo change?

Restructurer le cadre de la politique économique au Brésil : changement réel ou Gattopardo ?
Reestructurar el marco de la política económica de Brasil : Cambio real o Gattopardo ?
Rui Lyrio Modenesi, André de Melo Modenesi, Norberto Montani Martins et Patrick Fontaine

Résumés

Nous avons analysé le développement du Brésil depuis la deuxième guerre mondiale, et plus particulièrement les politiques économiques des présidents Lula et Rousseff, en intégrant les approches historique et de politique économique, à partir du concept de « convention de développement ». Deux conventions de développement se sont opposées dans cette lutte pour l’hégémonie : l’une pro-croissance, sous direction étatique ; l’autre pro-stabilité, libérale. Jusque dans les années 1970, la convention « pro-développement » prévalait. Au cours des années 1980, une convention de stabilité a commencé à s’affirmer ; l’ascendance du néolibéralisme a renforcé la priorité pour la stabilité par rapport à la croissance. En 1999, fut adopté le triangle macroéconomique – maîtrise de l’inflation ; changes flottants et objectif d’excédent budgétaire – aligné sur le Nouveau Consensus macroéconomique. Comme nous l’avons démontré, il a pris l’économie au piège : faible croissance, taux d’intérêt élevés, inflation relativement élevée et monnaie surévaluée. Depuis la grande crise de 2008, la politique économique a évolué vers un effort en faveur de la croissance. Pour les économistes orthodoxes, ce triangle s’est enrayé ou a été abandonné, et remplacé par une politique keynésienne. Pour les keynésiens, il s’agissait d’un point mort ; comme si le changement n’avait été qu’un changement-guépard, un « changement qui camoufle les mêmes choses ».

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Texte intégral

The authors give special thanks to Alexis Saludjian and Mickaël Clévenot for their valuable comments to earlier versions of the paper. They also acknowledge valuable comments by two anonymous referees. Any errors or omissions are their own.

Introduction

1In this paper is briefly analyzed Brazil’s development policy since World War II until the beginning of the 2000s. Then is detailed the economic policy adopted in Lula’s and especially in Rousseff’s government. This is done by integrating historical perspective with an approach based on political economy especially focused on the concept of development convention (Erber, 2011).

2According to Keynes (1937), people follow a conventional judgment (or behavior) when they endeavor to conform their judgment (or behavior) to the one that is dominant in a given society. As Salais (1989) called attention, etymology teaches that convention figuratively means accordance. As proposed by Keynes, it is a device utilized to overcome uncertainty in an entrepreneurial economy: it allows coordinating agents’ expectations and decisions under non-ergodic conditions (Davidson, 2002). Employed with this purpose, it is a key piece in Keynes’s investment theory. Some French economists played a significant role in the development of the theme by proposing the occurrence of conventions in a diversified set of economic areas, e.g., in the oligopolistic markets of industrial goods and in the labor market.

3Under the influence of Keynes and following more closely the French conventionalists – Orléan, in the first place, and also Dupuy – the Brazilian economist Fabio Erber formulated the concept of development convention. Accordingly, a development convention helps reducing the uncertainties and providing the coordination required by development process. It is a concept designed to the analysis of both development policies and their outcomes. Insofar as it allows an integrated historical-theoretical approach, it provides a multifaceted investigation of development experiences and strategies.

4According to Modenesi and Modenesi (2014), since World War II two development conventions have been struggling for hegemony in Brazil: a pro-growth – state led and a pro-stability – free market convention.

5Until the 1970s, the so called “developmentalist” convention (the historical paradigm of pro-growth – state led convention) was dominant or hegemonic. Its ideological and theoretical content was provided by the United Nations/Economic Commission for Latin America and the Caribe (ECLAC) staff members that have formulated the “center-periphery approach” or “structuralism”, according to which the world was divided into a developed industrialized center and an underdeveloped periphery – specialized in the production of primary goods and in their exportation to the center. Fostering industrialization and accelerating the needed structural economic-social changes in the termed “third world” was a role of the State to be accomplished through direct and indirect intervention.

  • 1 Telling about his youth, Furtado (1985: 21; our translation) asked himself “[h]ow not repudiating a (...)

6Most of ECLAC’s propositions were inspired by the innovative Keynes’s General Theory and by the previous “Anglo Saxon structuralism” that comprised the “pioneers of development”, as denominated by Sanchez-Ancochea (2004), whose classical works were those of Rosenstein-Rodan (1943), Nurkse (1953), Lewis (1954), and Myrdal (1957). Another influence on ECLAC staff members’ intellectual formation was Karl Marx’s Das Kapital. Furtado (1961) presented Marx’s view of capitalism development underlining that as a revolution “Marx behold capitalism mainly from the standpoint of its whole dynamics, of its ‘internal contradictions’, of its historical dimensions, of its beginning and ending” (Furtado, 1961: 32; our translation).1

7In the 1980s, a pro-stability – free market development convention began its ascent that was reinforced by the overwhelming surge of neoliberalism worldwide in the 1990s. In line with this process, during President Cardoso’s second mandate (1999-2002) a new economic policy regime – aligned with the New Consensus on Macroeconomics – was adopted. The new policy regime was based on the so called macroeconomic tripod: inflation targeting; floating exchange rate; and primary budget surplus targeting.

  • 2 For a critical view see: Lavoie (2004), Setterfield (2004, 2005, 2006), Arestis and Sawyer (2004, 2 (...)

8The emergence of the New Consensus on Macroeconomics (Blinder, 1981, 1998; Taylor, 1993, 2000; Allsopp e Vines, 2000; Romer, 2000) is associated with the growing popularity of inflation targeting and the resulting acceptance that, even where the regime is not adopted, the main instrument of monetary policy is the (basic) interest rate, and no longer the monetary aggregates of some decades ago, influenced by monetarism. The new consensus theoretical core is given by the confluence of monetarism, new classical and real business cycle theories. The natural rate of unemployment (Friedman, 1968) and rational expectations hypothesis are among the two most relevant assumptions shared by this large group of economists.2 Another fundamental part is the Taylor rule – which holds that the central banks should determine its interest rate aiming at an explicit or implicit inflation target, and at keeping GDP growth near to its potential. We agree with Lavoie that “the only truly new element in the new consensus […] is the rejection of the exogenous supply of money, and the replacement of money growth rule for a real interest rate targeting rule […]” (Lavoie, 2004: 23).

9In our view, the macroeconomic tripod turned out to be a trap: it resulted in low growth; chronically high interest rates; relatively high inflation; and overvalued currency. To get out of this trap, some attempts started in President Lula’s second term in office (2007-2010) and continued in President Rousseff’s first government (2011-2014). Eventually, it turned to be a significant process of economic policy change, comprising a relevant set of fiscal, financial, exchange rate and capital, and even monetary measures. The outcomes and the meaning of this change are rather controversial, as will be clear ahead.

1. Development conventions and economic policy in Brazil

1.1. The concept of development convention: Erber’s contribution

10Brazilian Professor Fabio Erber’s concept of development convention was designed to analyzing development processes and economic policies by means of the integration of historical perspective with an analytical approach based on political economy.

  • 3 According to Dictionary Le Robert.

11Salais (1989: 213) suggested that “[t]he etymology of the word helps to precise what we should understand, generally speaking, by convention. Convention comes from the Latin word conventio, originated itself from convenire: to come together, and in a figurative sense to be in accordance”.3

  • 4 This type of uncertainty is the result of a nonergodic stochastic system (Davidson, 2002). Accordin (...)

12With similar grasp of French conventionalists, Erber conceptualized convention as a “heuristic device for dealing with uncertainty”, in the Knight-Keynes sense,4 as far as it provides socially shared “guiding rules” necessary to structure individual expectation and behavior, thus reducing uncertainty and inducing economic or social coordination. Rules that establish “positive and negative agendas” (as suggested by Lakatos, 1970) which set up “a hierarchy of problems (e.g. inflation control, income distribution) which must be tackled”, and discern “solutions to such problems which are acceptable (e.g. inflation targeting) or not (e.g. administrative price controls), organizations in charge (e.g. Central Bank), as well as rules and regulations (e.g. Basle banking rules)” (Erber, 2004: 40). And eventually a teleology that, giving “coherence” to the guiding rules, strengths their guiding power by means of a “historical metaphor – a story, a theory, which explains how the present arouse out of the past and, especially, how the future will be if the rules are followed” (Erber, 2012: 7-8; our emphasis).

13Erber (2012) remarked that a development convention is an authentic social phenomenon transcending individual actions or judgments of the social actors participating of its formation, who nevertheless are eventually affected by it. A convention is a pattern of behavior or judgment constituted by the interaction of social actors each of whom trying to take a decision or to form an expectation under non-ergodic conditions.

14As Dequech (2003: 146) pointed out, “different concepts of rationality and convention have been used by different economists […]. Despite their conceptual differences, these economists have something in common: […] they all tend to focus on the rationality of following a convention (or a rule or the like)”.

  • 5 In 2008, Erber spent some time in the Centre d’Économie de Paris Nord (at Université Paris 13), doi (...)

15Erber was influenced by the French school of regulation and applied its concepts and theses to the analysis of the pattern of development in Brazil – a key factor to understand the meaning of development convention.5 He defined pattern of development as a “[…] set of relations between economic and social agents that ensure, for a given period of time, the continuity of the processes of capital accumulation and the preservation of political power” (Erber, 1992: 8; our highlights; our translation). In the economic dimension, these relations are translated into a set of standards regulating: accumulation; production; consumption; funding; innovation and diffusion of technology; State intervention; and international insertion.

16Erber’s concept of development convention is in line with the notion of Mode de Régulation [Mode of Regulation]. Boyer and Saillard (2002: p. 41) state that “a mode of regulation establishes a set of procedures and individual and collective behavior patterns which must simultaneously reproduce social relations through the conjunction of institutional forms which are historically determined”. Agents are involved by series of institutional arrangements that socialize and restrict both information and cognitive abilities, adopting situated (or limited) rationality. A mode of regulation ensures compatibility of a set of decentralized decisions, without requiring agents to internalize the principles governing the overall dynamic of the system (Aglietta, 1976). Modes of regulation may differ, depending on time and location, and evolve as a result of the interactions of its institutional forms (Benassy et al., 1979).

  • 6 Modenesi et al. (2013a) analyzed Keynes’s and French conventionalists convention approaches. For th (...)
  • 7 See Carvalho (2014), Lautier and Moreau (2012), and Thury and Freitas (2010).

17Both French conventionalists and Erber starting point was the pioneer employment of the concept of convention in the economic field by Keynes (1936)6. French conventionalists innovated by identifying the occurrence of convention in other economic areas/issues in which coordination is needed – for instance, the labor market and the role of the quality of products in oligopolistic competition. Later on, Erber also made an original contribution by formulating the concept of development convention.7

18Keynes (1937: 214) – where the author “most extensively discusses the following of conventions under uncertainty” (Dequech, 2003: 148) – proposed that we follow a conventional judgment (or behavior) when “we endeavor to conform with the majority or the average”, i.e., with the judgment or behavior dominant in a given society. Broadly speaking, a development convention allows circumvent the uncertainties faced by economic agents. Aiming at justify economic agents’ adoption of convention or conventional behavior, Dequech (2003) identifies six arguments, among which the following ones as explained in Modenesi et al. (2013a: 79): “the reasonability of the conformity with the average or majority opinion under the supposition that the individual judgment is not as valuable as that of the social group which may be better informed”; “the argument that majority opinion may represent an expectation about the future values of a the pertinent variable, what may turn the convention the best guess and eventually a self-fulfilling prophecy”; and the defensive behavior argument of Hamouda and Smithin (1988): “the safest course of action may simply be to follow the crowd”.

  • 8 This is, for example, the understanding of Salais (1989: 213): “[a] convention is a set of elements (...)

19French conventionalists established a similar, but in a relevant sense, different concept of convention: “conventions are usually thought of as involving several people”, or else a “given population” within a society (Dupuy, 1989).8 In opposition to Keynes’s concept, French conventionalists concept opens room to the coexistence of a plurality of conventions about the same social-economic subject at the same time in a given society. Accordingly, French conventionalists concept is a more general concept than Keynes’s concept of convention. Erber uses this notion to analyze phenomena that are not strictly economical but that comprise both social and political dimensions: economic development.

20As a matter of fact, Erber (2008a, 2012) has formalized a concept of development convention based in a comprehensive conceptualization of convention – which encompass French conventionalists contributions especially that made by Orléan (1989). Therefore it seems to deserve being entirely reproduced here:

  • 9 The author that should be referred in this conceptualization is not Orléan (2004), but Dupuy (1989) (...)

Such set of [guiding] rules, the positive and negative agendas they generate and the teleology underlying them are a convention – a collective representation which structures individual expectations and behavior (Orléan, 1989), in the sense that, given a population P, we observe a behavior C which holds the following characteristics: (1) C is shared by all members of P; (2) every member of P believes all other members will follow C; (3) such belief provides members of P with a sufficient reason to adopt C (Orléan, 2004)9. A convention arises out of the interaction of social agents but it is external to such agents and cannot be reduced to their individual cognition, i.e. it is an emergent phenomenon (De Wolf and Holvoet, 2005). In every society there are many conventions dealing with different aspects of economic and social behavior (e.g. quality of traded goods, the working of the financial system). Following our definition, a development convention is concerned with structural change. This begs the question about which “structures” are to be changed? The answer to that question differentiates development conventions (Erber, 2012: 8; emphasis in original).

21One should note that a development convention is a “social representation” (as proposed by Jodelet, 1989) embodying the necessary beliefs or cognitive content that – by means of the political and economic power of the population adherent to it – are the determinants of its “strength and evolution” (according to Erber, 2012: 8). Its cognitive content, by its turn, enables the development convention to subsume and to determine individual judgment (or behavior). Accordingly, Erber suggested that the adherence to a development convention depends on the outcomes achieved by following it. Metaphorically, as far as the Promised Land is perceived as being nearby people tend to follow the hegemonic convention.

22According to Modenesi and Modenesi (2014: 4) “an issue that Keynes did not at all develop was the process by which one convention is replaced by another”. According to Keynes (1937: 214-215):

[…] based on so flimsy a foundation [a convention] is subject to sudden and violent changes. [An environment of] immobility, of certainty and security, suddenly breaks down. New fears and hopes will, without warning, take charge of human conduct. The forces of disillusion may suddenly impose a new conventional basis of valuation (our highlights).

23In The General Theory, Keynes (1936) proposed that a convention can be either enduring or transient. Nevertheless, the dynamics of conventions was not an issue addressed by Keynes. Modenesi and Modenesi (2014: 4) conclude that: “the endeavor to produce a dynamic of conventions – i.e., how a convention emerges and/or eventually is replaced by another one – would prove to be worthless and perhaps unworkable. Accordingly, the dynamics of a convention should be treated as an exogenous phenomenon”. According to Erber (2012: 13):

[d]evelopment conventions arise out of the interplay of internal economic and political forces with the international context, and a crisis of such forces […] may prevent the incremental and cumulative process of change of a development convention, leading to an attack on its hard core […]. Under such circumstances, the hegemonic development convention tends to be replaced by a new convention.

24Summing up, development conventions do exist as a direct result of the concept of economic development itself. The structural changes subjacent to and characteristic of the development process produce (Keynesian type) uncertainty, as well as coordination problems (as stressed by the French Conventionalists). Development convention operates mitigating the uncertainties and providing the pertinent coordination required by the development process.

1.2. Development conventions in Brazil

  • 10 For a comprehensive analysis of developmentalism see Fonseca (2014).

25From a broad Historical perspective, two development conventions have struggled for hegemony in Brazil: a pro-growth – state led and a pro-stability – free market convention. The “developmentalist” convention was hegemonic from the end of World War II to 1970’s. According to it, development should be fostered by promoting structural changes under the leadership of the State.10 Its ideological and theoretical base was supplied by the United Nation/Economic Commission for Latin America and the Caribbean (ECLAC) thinking. According to Prebisch’s (1949) seminal contribution, world’s economic structure was integrated by two heterogenic components with specific functions: a developed center exporter of manufactured products to an underdeveloped periphery that exported primary goods to the former. Based on this dualistic approach – known as center-periphery approach which is a distinctive trait of the so called structuralist school – Prebisch formulated the theory of long run deterioration of terms of trade (of Latin American trade relations with the developed center). As emphasized by Furtado (1959, 1961), historically underdevelopment was a necessary counterpart of central economies’ development. Then, reproducing in the periphery in the mid-twentieth century the development process experienced by industrialized countries was unfeasible.

  • 11 See also Furtado (1966), especially chapter 6, whose title well expresses its subject: “The second (...)

26Most of structuralist propositions were inspired by the innovative Keynes’s General Theory and by the previous “Anglo Saxon structuralism”. “The influence of Keynes was clear about this issue” (Furtado, 1985: 61; our translation). According to Furtado, Keynes’s influence was instigating for young structuralists: “the American economic journals started addressing economic growth in connection with the search of equilibrium conditions of the Keynesian model” (Furtado, 1985: 89; our translation). Keynes also influenced ECLAC’s works designed to teaching in universities, to training Latin American bureaucracy and eventually to be empirically employed in State planning: “at the time we developed Planning Technique, and we knew the Domar’s paper in which he attempted streamline Keynes’s model” (Furtado, 1985:134; our translation).11

  • 12 Furtado (1966: 83; our translation) also observes that “considering the question by another angle, (...)

27For Furtado (1966: 82; our translation), “what is meant by ‘structuralist’ thinking in Economics has no direct relation with the French structuralist school whose general orientation has been to give relevance to the axes of synchronicities in the social analysis and to stablish a syntax of disparities in social organizations”. According to him, economic structuralism has highlighted the importance of noneconomic variables in economic analysis.12 Because those “noneconomic” factors – land property regime, companies control by foreign groups, existence of a population out of market economy – play a relevant role in ECLAC’s thought the term “structuralist” is also employed to refer to ECLAC’s theoretical framework.

  • 13 Especially the “pioneers of development” as called by Sanchez-Ancochea (2004): Rosenstein-Rodan (19 (...)
  • 14 According to Furtado (1985: 103), “ECLAC’s ideas armed ideologically opponents of liberalism: indus (...)

28Based on a structural-historical analysis, structuralist school supported a development strategy according to which only the State – promoting structural economic and social transformations – would be capable of overcoming the ill-fated historical heritage of underdeveloped countries.13 Promoting the intended socioeconomic changes should be fulfilled by means of direct and also indirect state intervention, i.e., development planning, public enterprises, public investment, and subsides/incentives to private investments.14 According to developmentalist convention, in addition to industrialization, other necessary conditions to achieve development were: the removal of bottlenecks in economic infra-structure; agriculture modernization; and the eventual bettering off of people’s living standards. To promoting industrialization the State should impose quantitative controls and high tariffs on the import of consumer goods and also favor the import of intermediary and capital goods – considered as essentials to promoting domestic industrialization. This strategy, known as “import substitution process”, is thoroughly explained by Tavares (1964) and Bielschowsky (1988).

29Besides, structuralism provided the teleology of developmentalist convention by picturing how underdevelopment was originated and how it could be surmounted. It also provided the shared guiding rules to coordinate economic agents’ expectation and behavior – reducing the uncertainty produced by the economic and social transformations resulting from development process. Those rules allowed specifying positive and negative agendas which established a hierarchy of problems to be solved (e.g., the deficiency of the industrial sector, the infra-structure bottlenecks). Accordingly, it was designed acceptable solutions (e.g., import substitution, public investment in infra-structure) and discharge non-acceptable solutions (e.g., reduce growth to control inflation). Finally, were indicated the organizations responsible to achieving the established goals and also the rules and regulations that will govern targets implementation.

30It is noteworthy that on one hand according to developmentalist convention, price stabilization was not a priority goal. On the other, it should also be emphasized that some expected changes were not carried out. For instance, income distribution, land reform, labor legislation modernization, and scientific and technological progress did not receive the necessary attention. In few words, the developmentalist convention was not fully implemented.

  • 15 As defined by Erber (2012).

31According to the lack of concern with inflation and the partial implementation of developmentalist agenda, under President Juscelino Kubitschek (1956-1960) – who campaigned using the slogan “fifty years [of development] in five” – GDP grew at an annual rate of approximately 8%, although inflation was accelerating to an annual rate greater than 22%. Another oversight was related to income distribution, which actually worsened during the Kubitschek years. Illustrating the strength15 of the developmentalist convention, i.e., its capacity of conditioning social judgment and behavior, President Kubitschek was considered the most popular president at that time.

32The high priority given to economic growth over other economic and social goals was greatly enhanced by a right wing military coup in 1964. State intervention to fostering industrialization was deepened, and inflation was at first reduced but soon after resumed its upward trending. During the twelve years from of 1968 to 1979 period, it was observed a historical record in terms of GDP growth rates – and industrial production led economic growth. Indeed, this period was characterized by a sustainable and high GDP growth rate and by the diversification of Brazilian productive structure. As a result, by the end of the 1970s, Brazil exhibited the most complex and integrated industrial park of Latin America.

  • 16 Gini coefficient increased from 0,535 to 0,589, from 1960’s to 1970’s.

33During almost three decades and a half after Second World War, economic performance has no parallel in Brazil’s history: GDP increased at an annual rate of 7,6%, and the share of industrial products in the GDP rose from 23% to approximately 33%. However, inflation accelerated progressively from 19% in 1946 to 67% in 1979, and income distribution worsened.16 Consequently, developmentalist convention was distorted given place to a simulacrum (Furtado, 1995). In other words, the developmentalist agenda was not fully implemented but adopted in a somewhat distorted form, which resulted in a restricted version of its agenda that was limited to fostering GDP growth.

34During the “lost decade” (of the 1980s), economic growth vanished drastically, external debt grew up to the point of generating a balance of payment crisis and a fiscal crisis erupted. Additionally, inflation went completely out of control disturbing the functioning of economic system and – due to its regressive effects on income distribution – its burden has especially affected the poor. Eventually, those bad results helped to accelerating a cumulative process of deconstruction of developmentalist convention.

35On one hand, widespread disillusionment with the deteriorated performance of developmentalist convention provided an opportunity for the emergence of neoliberal convention. On the other, in the wake of the global loosing of prestige of the Keynesian theory, the Washington Consensus appeared with a new agenda – to be worldwide promoted and even imposed by the IMF and the World Bank – including fiscal discipline, privatization, deregulation, and current and capital accounts liberalization. It also brought a new teleology: liberalization would pave the way for development. As a result of this unfavorable environment, developmentalist convention’s cognitive content was put in check and the teleology underlying the developmentalist convention became obsolete. Both of these factors contributed to reducing the number of developmentalist convention’s supporters thus weakening its political and economic power. Consequently, developmentalist convention’s ability to subsume and determine individual judgment and behavior was reduced.

  • 17 Utilizing Pocock’s (1975) concept of “Machiavellian moment” – in which the State address the proble (...)

36From 1985 to 1994, six stabilization plans failed to control inflation. During Collor’s administration (1990-1992) privatization and liberalization processes were started. However, only in 1994 the Real Plan (based on an exchange rate anchor) finally brought prices under control. During Cardoso’s terms (1995-2002), the Washington consensus preaching eventually succeeded: the stability convention became hegemonic.17 Privatization and capital account liberalization were deepened. State intervention was reduced substantially in favor of free market operation. Economic growth became secondary – or at best, a byproduct of price stability. As Bizberg and Théret (2012: 57) proposed, although the developmentalist coalition were weakened, “Brazil could and knew how to resist to the pure and simple imposition of the neoliberal economic model, which implied the rupture of development coalitions and the destruction of State economic intervention tools.”

37In 1999, the exchange rate anchor was abandoned in favor of the macroeconomic tripod comprising inflation targeting; floating exchange rate; and primary budget surplus targeting. Aligned with the New Consensus on Macroeconomics price stability became the main object of economic policy. Fiscal policy assumed a supporting role that was limited to avoiding the creation of inflationary pressures. As a result Brazilian macroeconomic performance was poor: low growth; chronically high interest rates; relatively high inflation (comparing to others developing countries); and overvalued currency. Concomitantly, the neoliberal convention was failing and losing prestige worldwide. Eventually, some rom was created for reestablishing some developmentalist policies in Brazil.

38Indeed, during Lula’s second term of office (2007-2010), and especially under Rousseff’s presidency were made successful attempts that, “not only stop the deepening of the liberal-monetarist model imposed during the 1990 decade as well as led to the adoption of measures that are opposed to that model” (Bizberg and Théret, 2012: 24). From a comparative analysis of the cases of Brazil, Argentina and Mexico, these authors concluded that Brazil was better allowed to a revival of a developmentalist economic policy. Marques-Pereira (2012) is less optimistic because he seems to understand that the restrictive monetary policy – keeping the basic interest rate at high levels so allowing high gains from the financing of public debt – “reflects a specific coalition of groups of interests that partially implies a blockage for the transition” (Marques-Pereira, 2012 [abstract]) to a developmentalist policy.

39As will be seen in the next section, this move gained momentum in the aftermath of the 2008 subprime financial crisis. Since then, neoliberalism has been put under questioning worldwide, as far as orthodox theory and policies have been unable to prevent a global crash.

2. The economic policy and its recent easing

40Here is first presented the main features and outcomes of the macroeconomic policy tripod. Secondly, it is described a considerable set of economic measures adopted during President Lula’s mandates (2003-2010) and during the first years of President Rousseff’s government (2011-2012).

2.1. The economic policy tripod: main goals and results

41The major macroeconomic issue of the Brazilian economy in the 1980’s and early 1990’s was an uncontrolled process of chronic high inflation. Both heterodox and orthodox economists agreed that inflation had become inertial, as far as the population had incorporated the inflationary memory: (current) prices were indexed to past inflation. With the adoption of the Real Plan in 1994, inflation was put under control at (relatively) low levels (Figure. 1).

Figure 1. Yearly Inflation Rate (IPCA) (%)

Figure 1. Yearly Inflation Rate (IPCA) (%)

Source: IBGE. IPCA: consumer price index.

42The Plan was based on an exchange rate anchor sustained by excessively high interest rates, which attracted foreign capitals (Hermann, 1999). In the late 1990’s, with the crises of Asian emerging countries this strategy became unsustainable. Capital outflows prompted speculative attacks against the Brazilian real (Figure 2). The lattermost speculative attack occurred in September of 1998, when the balance of payments registered a net outflow of US$ 21.8 billion (see arrows in Figure 2) and international reserves fell 32.0%, from a level around US$ 70 to about US$ 40 billion.

Figure 2. Monthly (net) result of the Brazilian balance of payments (US$ Million)

Figure 2. Monthly (net) result of the Brazilian balance of payments (US$ Million)

Source: BCB.

  • 18 In Brazil, the basic interest rate goes by the acronym (Selic) for Sistema Especial de Liquidação e (...)

43In 1999, the macroeconomic tripod was adopted comprising: 1) inflation targeting regime; 2) floating exchange rate, with high capital mobility; and 3) primary surplus targets. Price stability was pursued by fixing the basic interest rate (Selic18) according to a Taylor rule – controlling simultaneously aggregate demand and, though not directly, the exchange rate, which was the most relevant monetary policy transmission channel. Fiscal policy, in its turn, assumed a supporting role that was limited to avoiding the creation of inflationary pressures and to keeping a stable debt/GDP relation.

  • 19 One should note that not all administrated prices are indexed to past inflation.

44The outcomes were unsatisfactory. Inflation was kept under relative control but presenting a downward rigidity (Figure 3). There are two main reasons for that. First, price indexation (to past inflation) is still in force. Some key prices – for instance, some public tariffs, such as public transportation and energy; and also petroleum products and rents – are indexed to past inflation by law. Indeed, administrated inflation (weighing one third of CPI)19 drove inflation rate above the target until the early 2007. As a rule, prices in general (and also wages) are also indexed to inflation (in a 12 months basis). Inflation presents a high inertial component and thus, controlling aggregate demand – via monetary or fiscal policy – has proven to have little efficacy in curbing inflationary pressures.

Figure 3. Inflation (IPCA) accumulated in 12 months (%)

Figure 3. Inflation (IPCA) accumulated in 12 months (%)

Source: IBGE and BCB.

45The second reason for inflation rigidity is related to financialization of commodity markets (UNCTAD, 2009) and emergence of China and India as big commodities importers. Consequently commodity prices rose sharply. Indeed imported inflation was relevant to explain domestic inflation dynamics.

46As a result, Brazilian real appreciation was essential to curbing inflation. Two main problems are related to this inflation control strategy: chronic high interest rates and the overvaluation of real. Indeed, monetary policy during the 2000’s was rather conservative (Nakano, 2005 and 2006; Erber, 2008a, 20008b and 2011; Modenesi, 2011). Extremely high basic interest rates were used to keep the real overvalued (Table 1). In others words, BCB was highly conservative by adopting a rigid Taylor rule (Modenesi et al., 2013b).

Table 1. Basic interest rates of selected countries

 

2005

2006

2007

2008

2009

2010

2011

Latest*

Brazil

18,0

13,3

11,3

13,8

8,8

10,8

11,0

7,5

India

6,3

7,0

7,0

6,0

4,3

6,3

8,5

8,0

Russia

12,0

11,0

10,0

13,0

8,8

7,8

8,0

8,3

China

5,6

6,1

7,3

5,3

5,3

5,6

6,6

6,0

Turkey

13,5

17,5

15,8

15,0

6,5

6,5

5,8

5,8

Mexico

8,3

7,0

7,5

8,3

4,5

4,5

4,5

4,5

Euro Area

2,3

3,3

4,0

2,5

1,0

1,0

1,0

0,8

UK

4,5

5,0

5,5

2,0

0,5

0,5

0,5

0,5

USA

4,0

5,3

4,3

0,3

0,3

0,3

0,3

0,3

Source: Trading Economics. *As of September 20, 2012.

  • 20 One should note that a decrease in exchange rate (R$/US$) is equivalent to an appreciation (or a ri (...)

47Indeed, currency appreciation was impressive: Brazilian real rose 50% against the US Dollar between end-2002 and 2010 (Figure 4).20 The consequent loss of competitiveness (Figure 5) led to a decreasing trend in the share of manufactured goods in export basket.

Figure 4. Exchange Rate (R$/US$)

Figure 4. Exchange Rate (R$/US$)

Source: BCB.

Figure 5. Brazil Export Basket by type of goods (%)

Figure 5. Brazil Export Basket by type of goods (%)

Source: MDIC-SECEX.

48There is a debate regarding Brazilian industry poor performance. According to Bresser-Pereira (2010), a deindustrialization process would be in course and Brazilian economy would be suffering from Dutch disease. Carvalho and Kupfer (2011), in their turn, highlight the premature specialization of Brazilian industry. All of them agree that a more competitive exchange rate would contribute to improve the competitiveness of Brazilian economy.

49Summing up, the macroeconomic tripod has locked Brazilian economy in a trap. Despite of the extremely high interest rates and the overvaluation of Brazilian real BCB has not been able to maintain inflation at the center of the target. Besides that, GDP growth remained below its long-term (1939-2012) average.

Figure 6. Brazilian GDP real growth rate (%): 1939-2012

Figure 6. Brazilian GDP real growth rate (%): 1939-2012

Source: IBGE.

2.2. The economic policy easing

50Here are presented the main changes in economic policy adopted during President Lula’s second mandate (2007-2010) and intensified during the first half of Rousseff’s government (2011-2013).

2.2.1. Fiscal Policy: fostering investment

51The pursuit of high primary fiscal surplus targets prevented using countercyclical fiscal policy. During the 2003-2006 period, a great effort was done to increasing budget surplus. However, following the subprime (2008-2009) and the Euro (2011-2012) crises, fiscal policy was used to offset the economic downturn.

Figure 7. Brazilian Primary Surplus* (% GDP)

Figure 7. Brazilian Primary Surplus* (% GDP)

Source: BCB. * “Below the line” concept, i.e., calculated as the variation of the total net public debt.

52Since the second Lula’s administration, some efforts have been implemented aiming at fostering public investment. In 2007, was launched the Plano de Aceleração do Crescimento (PAC, Plan for Growth Acceleration), designed to foster investments in infrastructure and public services. The Minha Casa Minha Vida (My House, My Life) program has already built more than 2 million houses.

  • 21 The period of depreciation of capital assets was reduced from 10 to 5 years.

53In 2011, Rousseff inaugurated the Brasil Maior Plan which benefited forty industrial sectors (key to economic development; for instance, capital and durable goods industries) by reducing taxes on payroll. This generated a R$ 6 billion reduction on tax revenue in 2013, and the elimination of tax burden on employment – what is expected to increase employment and boost competitiveness. Additionally, fiscal incentives were granted to stimulate the purchase of new equipment and machines.21 The tax exemption due to this measure is expected to amount to R$ 3,4 billion during the 2013-2017 period.

54In August 2012, Rousseff announced a new version of the PAC focused on public investment in highways and railways (amounting R$ 66 billion). To carry out the investments and to regulate the transport system, a public enterprise was created, Empresa de Planejamento Logístico (ELP, Company for Logistic Planning). The expectation is to build 7.500 km of highways and 10.000 km of railways, and a bullet train connecting Rio de Janeiro and São Paulo.

  • 22 Inflation control strategy is somehow in line with the structuralist view of inflation (Noyola, 195 (...)

55Furthermore, electric energy price, one of the highest in the world, was significantly reduced both to home and industrial consumers. The reduction was held through energy suppliers’ tax burden reductions and the extension of their concession contracts. So, Federal government was aiming at promoting a consumer price reduction by reducing the tax burden of supplier of gas and some items of a basket of essential consumer goods. One should note that those measures diverge from the liberal character of policymaking adopted during Cardoso’s terms in office.22

2.2.2. Monetary policy

56The first signals of changes in the conservative conduction of monetary policy were seen during the last six months of Lula’s administration. In September 2010, the Brazilian Central Bank’s (BCB) Open Market Committee (Copom) kept Selic rate unchanged (10,75%) despite rising inflation expectations – suggesting an inflation rate above the target (4,5%).

57Two additional relevant measures were adopted by Copom by year end. First, reserve requirements on deposits were raised aiming at slowing aggregate demand growth and thus contributing to inflation control. This measure was presented as an alternative to a raise in Selic. Second, macro-prudential measures (set by the Basel Accord) were adopted – i.e., enhancing capital requirements on loans to individuals, especially for buying vehicles. However, the acceleration of inflation (and of inflation expectation) did not cease. Then, the BCB raised basic interest rate five times during the first half of 2011.

  • 23 According to the survey carried out monthly by BCB and published in its Focus report.

58In august 2011, the Copom reduced Selic to 12,0% despite the rise in inflation (and in inflation expectations reveled by financial market).23 This was the first time under the inflation targeting regime that the BCB has not followed the financial market consensus (or convention). Following this decision, Selic rate was reduced eight more times (Figure 8), achieving a historical minimum, 7,5% p.y. Accordingly, BCB became less conservative.

Figure 8. Basic Interest Rate (Selic)

Figure 8. Basic Interest Rate (Selic)

Source: BCB. Line indicates Lehman Brothers collapse.

2.2.3. Financial policy

  • 24 From 208 to 2014, the BNDES (Brazilian Development Bank) received more than R$ 400 billion in new r (...)

59Following the 2008 subprime Crisis, private banks drastically reduced loan concession (Figure 9). Due to a governmental decision, state-owned banks – BNDES24, Banco do Brasil and Caixa Economica Federal –, in their turn, aggressively expanded loan concession in order to prevent a major decline in credit supply.

Figure 9. Overall loans growth rate by ownership of the bank (12 months %)

Figure 9. Overall loans growth rate by ownership of the bank (12 months %)

Source: BCB.

60During the second half of 2009, while private credit was growing at an annual rate around 5%, public credit was increasing at a 30-35,0% rate. So, the share of public banks in the credit market rose from 34,1% to 45,5% (Figure 10).

Figure 10. Loans by bank ownership (%)

Figure 10. Loans by bank ownership (%)

Source: BCB.

61In the aftermath of the Euro crisis, a second round of countercyclical action was adopted in the end of 2011 and gained momentum during the first quarter of 2012 (Figure 9). This new round of public credit expansion represented an attempt to restoring consumption and economic activity levels.

62Additionally, the role of the two main public banks was redesigned. Accordingly, Banco do Brasil (BB) and Caixa Econômica Federal (CEF) promoted a crusade against high bank spreads (April 2012). These institutions reduced their interest rates – following an explicit political decision taken by President Rouseff. After some resistance of major private banks, bank spread began to be decreased and thus interest rates. As shown in Table 2, BB and CEF cut around 4,0 percentage points (p.p.) in the spread of their main credit lines. Itaú-Unibanco did cut 8.0 p.p. and Bradesco 2,5 p.p. on loans to individuals. According to President Rousseff “Brazil was the last free lunch in the world for the banks”. According to Paula et. al. (2015), “The expansionary strategy of the state-owned banks, mainly through the three federal ‘giants’ – BNDES, Banco do Brasil (BB) and Caixa Economica Federal (CEF) – was a political decision made by the Brazilian government to manage the contagion resulting from the crisis” (Paula et. al., 2015: 420-1).

Table 2. Average spreads on loans to individuals and working capital

Table 2. Average spreads on loans to individuals and working capital

Source: Authors’ elaboration based on BCB’s data. Spreads were calculated by the difference between loans rates and the basic rate. *As a matter of comparison, the basic rate was cut in 2.25 p.p. during the same period.

  • 25 Debentures issued with the special purpose of implementing an infrastructure project, regulated by (...)

63Financial policies were not limited to credit market. There was an attempt to foster long-term capital market, especially long-term corporate bond market. Government passed a law in 2011 that: (i) set tax incentives for non-resident to invest in long-term bonds; (ii) stimulates resident and non-resident to buy infrastructure debentures;25 (iii) creates a special category of investment funds, research, development and innovation investment funds; (iv) improves infrastructure investment funds; and (v) eases conditions for issuing debentures and financial bonds (ANBIMA, 2011b and 2011c; Freitas, 2011).

  • 26 Brazilian Financial and Capital Markets Association.

64These measures were complemented by a joint initiative taken by BNDES and ANBIMA26 aiming at creating the so called New Market for Fixed Income (NMFI) – with high corporate governance standards. The adherence to NMFI is not mandatory but represents a quality stamp to bonds issued. New rules include special conditions for terms, repurchase (allowed only 12 months after the issue), remuneration (banning indexation to Selic) among others. They also include “a set of measures aiming at support secondary market liquidity.” (IMF, 2012b: 50).

65Finally, the structure of public debt remuneration has been changing in favor of pre-fixed bonds – amounting up to 40% of the total public debt (Figure 11). The share of bonds indexed to Selic (LFT) as proportion of total public debt was reduced considerably.

Figure 11. Public debt-Share of indexers (%)

Figure 11. Public debt-Share of indexers (%)

Source: BCB. FX: foreign exchange (mostly US dollar). CPI: consumer price index (IPCA). Selic: basic interest rate.

  • 27 One should note that, despite foreign investors’ interest in resorting to Brazilian New Market, it (...)

66Summing up, measures described above are intended to improving the functionality of the financial system and its ability to provide funding for investment and thus promoting economic development. Lower bank spreads also contribute to increase credit/GDP ratio. A long-term capital market helps corporations to funding their investments.27

2.2.4. Exchange rate policy and capital controls

67Before policy tripods’ easing, massive inflow of short term foreign capital was causing an excessive appreciation of Brazilian real. To prevent a further round of currency appreciation, capital controls were adopted: a 2% rate of a tax on financial transactions (IOF) was imposed to nonresident portfolio equity and debt inflows.

  • 28 For instance, quantitative easing program and the Twist operation.
  • 29 Respectively, central banks of the USA and England.

68Following this measure, the Brazilian real appreciation process was reduced. But in 2010, with the impressive economic recovery (GDP grew 7,5%) and, specially, after the adoption of unconventional monetary policy28 by majors central banks (FED and BOE29), capital inflows accelerated once again, amounting to US$ 141 billion (6,8% of GDP). The IOF rate was tripled from 2% to 6% but it was not sufficient to stop the appreciation of the Brazilian real, as the IMF (2011: 35) diagnosed:

[e]mpirical evidence suggests that the IOF measures did not have a clear, long-lasting effect on the exchange rate—at least relative to its level at the time the various IOF measures were introduced. This may have been due to the fact that the introduction of the IOF did not trigger a significant reduction in nonresidents’ positioning in the futures market.” (IMF, 2011: 35).

  • 30 Reader should be remind that an increase in exchange rate (R$/US$) is equivalent to a depreciation (...)

69Finance Ministry adopted several measures, intensifying capital controls. The most important one, taken in 2011, was the imposition of 1% IOF on net long position in Brazilian real (or a short position in US$) in exchange rate future derivative contracts (hereafter FX derivatives). This measure was improved and fine-tuned three times in February and March 2012, when the Brazilian real appreciation was finally contained (exchange rate rose to about 2,00 R$/US$)30. Figure 12 illustrates the efficacy of the capital controls measures (lines indicate the days when changes in IOF were introduced): after reaching a lower bound around 1,55 R$/US$ exchange rate increased to more than 2,00 R$/US$.

Figure 12. Daily exchange rate (R$/US$)

Figure 12. Daily exchange rate (R$/US$)

Source: BCB. Bars indicate changes on financial transactions tax.

70Figure 13 shows the net position (of non-residents) on FX derivatives (bars indicate the adoption of IOF on FX derivatives). A positive (negative) net position indicates a long (short) position in Brazilian real. A long (short) position represents an expectation of Brazilian real appreciation (depreciation).

Figure 13. Net position of nonresidents in FX derivatives (US$ billions)

Figure 13. Net position of nonresidents in FX derivatives (US$ billions)

Source: BCB.

71Summing up, Capital controls were brought to the center of economic debate. Brazilian Finance Minister, G. Mantega, publicly stated that Brazil is prone to use capital controls and intensify the existing controls if necessary. This statement was made after the FED announced the third round of the quantitative easing program. According to him, Brazil was ready to fight the currency war trigged by the USA.

3. The Economic Policy Recent Change: Gattopardo change?

72As we have seen, a comprehensive set of economic measures began to be taken during President Lula’s and expanded in President Rousseff’s governments. The first significant step was the launching, in 2007, of the Plano de Aceleração do Crescimento (PAC, Plan for Growth Acceleration) intended to increase investment in infrastructure and in the building of affordable homes. Thereafter the orthodox economic policy started to be eased by the adoption of a great variety of countercyclical and heterodox measures especially in the aftermath of both the subprime (2008-2009) and the Euro crises (2011-2012). The number of measures and the range of areas to which they were addressed is outstanding. The consequent main differences between the macroeconomic frameworks of the period 1999-2006 and that of the period 2007-2013 are illustrated by the schemes below. As is known, the first period was marked by the continuation of the orthodox economic policy inherited from President Cardoso’s government; and the second has been characterized by a pragmatic conduct of economic policy especially in response to the international crises.

Scheme 1. Economic Policy Framework in Brazil between 1999 and 2006

Scheme 1. Economic Policy Framework in Brazil between 1999 and 2006

Scheme 2. Economic Policy Framework in Brazil between 2007 and 2013

Scheme 2. Economic Policy Framework in Brazil between 2007 and 2013

73Let us summarize the main changes in each economic policy branch. Monetary policy was turned less rigid. In fact, the interest rate was significantly reduced and was kept in more reasonable levels, on one hand helping to sustain demand and on the other hand signaling that economic policy was not focusing price stability at any cost. Inflation controlling started counting on new (non-monetary) instruments – such as macro-prudential measures and tax exemptions – instead of being based solely in interest rate management. During the 2003-2006 period, fiscal policy was rigidly managed to increasing fiscal surplus. Especially following the subprime Crisis, fiscal policy started being eased to play a countercyclical role by offering incentives to fostering investment in infrastructure and to stimulating consumption.

74Financial stability became an explicit goal of economic policy to be accomplished by means of macro-prudential tools. To compensate for private banks’ reduction of loan concession, state-owned banks expanded their credit facilities to corporations and individuals. State-owned banks were also utilized to enhance competition in order to reduce bank spreads. Some measures were adopted to foster long-term capital markets.

75In order to avoid an excessive appreciation of the Brazilian real, the exchange rate policy started to count on capital controls in order to prevent a massive inflow of short-term foreign capital. The main measure was the taxation on nonresident portfolio equity and debt and on short US$ position in FX future derivatives.

76Taking into account the variety of measures implemented (see Schema 2) it is unavoidable to question about the very meaning of the economic policy framework change. Was adopted a new economic policy regime? Accordingly, the stability convention is still hegemonic?

  • 31 The reaction was classified as “indignant and angry” by Delfim Netto (2011), former Minister of Fin (...)

77There is no consensus at all about the first issue, but at least two major responses to it: the orthodox and the Keynesian ones. For most orthodox authors, the change went too far, insofar as the tripod was abolished. For some others, it was marred.31 Accordingly, it has been suggested that the orthodox policy was replaced (or at least was being replaced) by a Keynesian macroeconomic policy. Keynesians decidedly contradict this interpretation emphasizing that present economic policy does not fulfil the requirements of a Keynesian policy.

78We may properly picture the change in economic policy framework resorting to the following metaphor: it is a Gattopardo change, i.e., a “change that keeps things the same” (Palley, 2013: 1). Palley named this concept after Luchino Visconti’s Il Gattopardo (The Leopard), a film based on a novel about the revolutionary rising of the bourgeoisie in Sicily in the 1860s. In the story, an aristocrat character concludes that “things must change if they are to remain the same”. And eventually, the movie shows that “after the revolution, the old aristocracy remains in charge, allied via marriage with the new urban elite” (Palley, 2013: 1).

79For Keynesians, economic policy has changed but in an ad hoc manner, i.e., only due to the crises, and there was only adopted “[s]ome economic policies and structural measures that appear to be Keynesian and heterodox policies” (Cunha et al., 2014: 537; our emphasis).

80They do not question the relevance of countercyclical measures and of those intended to promote economic growth and social development. On the contrary, they recognize that “a positive combination of growth acceleration, macroeconomic resilience, income distribution and poverty reduction has created a new environment” (Cunha et al., 2014: 537). Nevertheless, all this resulted from an ad hoc economic policy that comprises an evident contradiction, from a Keynesian analytical perspective. As they explained: “[o]n the one hand, macroeconomic policy is still based on monetary regime dominance (i.e., an inflation targeting regime) and on the other hand, countercyclical economic policies have been managed” to face the subprime crisis and the Euro crisis (Cunha et al., 2014: 537).

81In short, in a Keynesian viewpoint the macroeconomic tripod was not replaced, much less by a Keynesian macroeconomic policy. They stated this in a very straightforward manner: “[s]ince 1999, Brazil has adopted macroeconomic policy characterized by the consistency and convergence to the New Macroeconomic Consensus framework” (Cunha et al., 2014: 536). According with Palley’s terminology the shift in economic policy was merely Gattopardo change.

82In what measure the changes reflected the surging of a new hegemonic development convention? On one hand, there is no doubt that the stability convention had its hegemony significantly shacked. However, it is not clear whether it is a long-lasting phenomenon. Conventions dynamics – a genuinely sociological phenomenon – is nonlinear and rather complex. As suggested by Keynes (1936), conventions can either be durable or liable to unpredictable moves.

83Then, one cannot safely state that we are witnessing the formation of a new dominant development convention. The recent changes in economic policy may perfectly be reflecting a mere spasm of the stability convention, not giving room to the emergence of a hegemonic pro-growth development convention. The present moment of non-normality – marked by the global crises – explain a good part of the changes. Accordingly, the returning to a condition of economic normality can result in a resumption of a strictly orthodox economic policy and in a reinforcement of the hegemony of the stability convention.

Final Remarks

84Two development conventions have struggled for hegemony in Brazil: a pro-growth – state led and a pro-stability – free market convention. From the World War II until the end of the 1970’s, the former was dominant. With the surge of liberalism worldwide and the success in inflation controlling achieved with the 1994 Real Plan, the stability convention conquered hegemony which was reinforced by the adoption in 1999 of an economic policy focused on inflation targeting.

85The conservative conduct of Brazilian monetary policy since 1999 builds on the hegemony of the pro-stability convention. This policy locked economy into a trap: low growth; high interest rates; relatively high inflation; and overvalued currency.

86Since the second President Lula’s mandate (2006-2010), and mostly under President Rousseff’s government (from 2011 to present year of 2013), there have been implemented a comprehensive set of structural and heterodox measures especially countercyclical ones intended to facing the negative impacts of the crises on the Brazilian economy.

87As a response to an adverse international framework, the orthodox economic policy started to be eased: designed to increase investment in infrastructure and in the building of affordable homes, the 2007 Plan for Growth Acceleration can be considered a turning point. The period 1999-2006 was marked by the continuation of the orthodox economic policy inherited from President Cardoso government. From 2007 to the current year (2013) there has been a pragmatic conduct of economic policy intended to sustaining demand by giving incentives to investment and also stimulating consumption. However, fiscal policy was not made a permanent countercyclical instrument. The macroeconomic tripod has been preserved, and inflation controlling is still its prevalent objective, i.e., inflation targeting dominance was maintained.

88For some supporters of the macroeconomic tripod it was dropped and for others it was marred. Some go even further arguing that it was replaced by a Keynesian macroeconomic policy. Keynesians decidedly contradict this interpretation replying that the present economic policy does not fulfil the requirements of a Keynesian policy. Change in economic policy was a sort of Gattopardo change: “change that keeps things the same”.

89Finally, one cannot state that we stand before the formation of a new dominant convention. The recent changes may be reflecting a mere spasm of the stability convention mainly due to the abnormal international economic conditions. The returning to less adverse domestic and external conditions can lead to the resumption of a strictly orthodox economic policy and to a reinforcement of the hegemony of the stability convention.

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Notes

1 Telling about his youth, Furtado (1985: 21; our translation) asked himself “[h]ow not repudiating an economic system to whose instability should be attributed the emergence of fascism and of an odious war?” to answering: “[w]ell, Marxism seemed to be the sole doctrine that promised a stable world, without unemployment and the rentable weapon business”. He also told that Emmanuel Mounier had once said to him: “Marxism, in a hundred years, was slain verbally more than the Christianity over centuries and yet its impact on human conscience remained as strong as ever” (Furtado, 1985: 21; our translation).

2 For a critical view see: Lavoie (2004), Setterfield (2004, 2005, 2006), Arestis and Sawyer (2004, 2005), and Fontana and Palacio-Vera (2002).

3 According to Dictionary Le Robert.

4 This type of uncertainty is the result of a nonergodic stochastic system (Davidson, 2002). According to Keynes: “[it] cannot depend on strict mathematical expectation because the basis for such calculations does not exist” (Keynes, 1936: 163).

5 In 2008, Erber spent some time in the Centre d’Économie de Paris Nord (at Université Paris 13), doing a research on development theory and political economy.

6 Modenesi et al. (2013a) analyzed Keynes’s and French conventionalists convention approaches. For them, Keynes “has presented concepts of convention, examples of convention and of conventional judgment (or behavior), but has never translated its content into a formalized expression” (Modenesi et al., 2013a: 77). See also Dequech (2011). For Davis (1997: 130), Keynes would have deepened his understanding of the concept of convention if he “were to write a second edition of The General Theory”.

7 See Carvalho (2014), Lautier and Moreau (2012), and Thury and Freitas (2010).

8 This is, for example, the understanding of Salais (1989: 213): “[a] convention is a set of elements that – for the participants of the convention – go together all the time, and about which they share a common agreement” (our translation and emphasis).

9 The author that should be referred in this conceptualization is not Orléan (2004), but Dupuy (1989), whose original definition of convention is partially utilized here by Erber.

10 For a comprehensive analysis of developmentalism see Fonseca (2014).

11 See also Furtado (1966), especially chapter 6, whose title well expresses its subject: “The second projection of Keynesian analysis: dynamic models” (our translation).

12 Furtado (1966: 83; our translation) also observes that “considering the question by another angle, structuralists resumed the tradition of Marxist thought insofar as the latter gave prominence to the analysis of social structures as means to understand the behavior of economic variables”.

13 Especially the “pioneers of development” as called by Sanchez-Ancochea (2004): Rosenstein-Rodan (1943), Nurkse (1953), Lewis (1954) and Myrdal (1957).

14 According to Furtado (1985: 103), “ECLAC’s ideas armed ideologically opponents of liberalism: industrialization was the only way to proceed with development” (our translation).

15 As defined by Erber (2012).

16 Gini coefficient increased from 0,535 to 0,589, from 1960’s to 1970’s.

17 Utilizing Pocock’s (1975) concept of “Machiavellian moment” – in which the State address the problem of its instability over time – Sallum Jr. (1999) stated: “the Real Plan was only an essential but subordinated instrument of a Machiavellian moment […] in the overcoming of a crisis of hegemony in the definition of new stable power in the Brazilian society” (p. 30; our translation). The essence of Real Plan “was the composition of a center-left wing coalition in favor of conquering and reconstructing the power of the State according to a predominantly liberal perspective” (Sallum Jr., 1999: 30; our translation). In the elections held immediately after the launching of the plan, the coalition obtained an overwhelming victory: it elected President Cardoso, the Finance Minister that backed the Plan, the majority of state governors, and members of Congress. Sallum identifies a “polarization itself between two opposed versions of liberalism, the neoliberal and the liberal-developmentalism” [p. 46; original in English (Abstract)]. The former prevailed in Cardoso’s first mandate when the primary governmental goal was to break some institutional pillars of the national-developmentalist State and to liquidate the remaining of President Vargas Era. The hard core of this project was reducing the role of the State in the economy, improving public finances, and adopting some social policies. The latter is marked by “the macroeconomic changes that started in January 1999” which “are the basis for a liberal-developmentalist reorientation of the government” [p.46; original in English (Abstract)]. Sallum Jr. (1999) concluded that “the first version was no doubt predominant, consistently guiding the hard core of economic policy […] the second did not have the consistency of the first one” (p. 36; our translation). See also Sallum Jr. (2003).

18 In Brazil, the basic interest rate goes by the acronym (Selic) for Sistema Especial de Liquidação e de Custódia (Special System for Settlement and Custody), the settlement system for most domestic securities of Brazilian central government.

19 One should note that not all administrated prices are indexed to past inflation.

20 One should note that a decrease in exchange rate (R$/US$) is equivalent to an appreciation (or a rise) of Brazilian real.

21 The period of depreciation of capital assets was reduced from 10 to 5 years.

22 Inflation control strategy is somehow in line with the structuralist view of inflation (Noyola, 1956; Sunkel, 1958). Inflationary pressures are related to structural economic system features: Oligopolies, and rigidities such as the inelasticity of supply of basic goods/services and other inputs.

23 According to the survey carried out monthly by BCB and published in its Focus report.

24 From 208 to 2014, the BNDES (Brazilian Development Bank) received more than R$ 400 billion in new resources from the National Treasury.

25 Debentures issued with the special purpose of implementing an infrastructure project, regulated by Decree 7603/2011.

26 Brazilian Financial and Capital Markets Association.

27 One should note that, despite foreign investors’ interest in resorting to Brazilian New Market, it has proved to be problematic due to the volatility and pro-cyclicality of foreign capital flows (Hermann and Martins, 2012).

28 For instance, quantitative easing program and the Twist operation.

29 Respectively, central banks of the USA and England.

30 Reader should be remind that an increase in exchange rate (R$/US$) is equivalent to a depreciation (or a fall) of Brazilian real.

31 The reaction was classified as “indignant and angry” by Delfim Netto (2011), former Minister of Finance and of Planning. Professor Nakano (2011) mentioned that spoken men of the financial market came to light to denounce the abandonment of the “most valuable principles” of the inflation targeting regime. Among them, is Olivares (2011) for whom Brazil was in times of “monetary policy in samba rhythm”, and also Schmidt (2011) who wished “good-by to Taylor rule” and welcomed “Rousseff [President Dilma Rousseff] rule”, both of them mocking the government’s attempt to reconcile growth and inflation control. Franco (2011), former BCB President, resort not only to irony but also to rudeness toward the Finance Minister to mourn the affront to the “liturgy of the inflation targeting regime”. Later on, Jensen and Ribeiro (2012) warned that the tripod should be taken up again, so putting an end in the triple goal policy in force at that time. However, Arida, former BCB President, considered “alarmist” these critics (Valor Econômico, 2011) and Werlang, former director of BCB, approved them: “this combination of more fiscal policy and less monetary policy is good” (Valor Econômico, 2012).

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Table des illustrations

Titre Figure 1. Yearly Inflation Rate (IPCA) (%)
Crédits Source: IBGE. IPCA: consumer price index.
URL http://regulation.revues.org/docannexe/image/11322/img-1.png
Fichier image/png, 18k
Titre Figure 2. Monthly (net) result of the Brazilian balance of payments (US$ Million)
Crédits Source: BCB.
URL http://regulation.revues.org/docannexe/image/11322/img-2.png
Fichier image/png, 18k
Titre Figure 3. Inflation (IPCA) accumulated in 12 months (%)
Crédits Source: IBGE and BCB.
URL http://regulation.revues.org/docannexe/image/11322/img-3.png
Fichier image/png, 27k
Titre Figure 4. Exchange Rate (R$/US$)
Crédits Source: BCB.
URL http://regulation.revues.org/docannexe/image/11322/img-4.png
Fichier image/png, 23k
Titre Figure 5. Brazil Export Basket by type of goods (%)
Crédits Source: MDIC-SECEX.
URL http://regulation.revues.org/docannexe/image/11322/img-5.png
Fichier image/png, 40k
Titre Figure 6. Brazilian GDP real growth rate (%): 1939-2012
Crédits Source: IBGE.
URL http://regulation.revues.org/docannexe/image/11322/img-6.png
Fichier image/png, 36k
Titre Figure 7. Brazilian Primary Surplus* (% GDP)
Crédits Source: BCB. * “Below the line” concept, i.e., calculated as the variation of the total net public debt.
URL http://regulation.revues.org/docannexe/image/11322/img-7.png
Fichier image/png, 26k
Titre Figure 8. Basic Interest Rate (Selic)
Crédits Source: BCB. Line indicates Lehman Brothers collapse.
URL http://regulation.revues.org/docannexe/image/11322/img-8.png
Fichier image/png, 21k
Titre Figure 9. Overall loans growth rate by ownership of the bank (12 months %)
Crédits Source: BCB.
URL http://regulation.revues.org/docannexe/image/11322/img-9.png
Fichier image/png, 34k
Titre Figure 10. Loans by bank ownership (%)
Crédits Source: BCB.
URL http://regulation.revues.org/docannexe/image/11322/img-10.png
Fichier image/png, 21k
Titre Table 2. Average spreads on loans to individuals and working capital
Crédits Source: Authors’ elaboration based on BCB’s data. Spreads were calculated by the difference between loans rates and the basic rate. *As a matter of comparison, the basic rate was cut in 2.25 p.p. during the same period.
URL http://regulation.revues.org/docannexe/image/11322/img-11.png
Fichier image/png, 11k
Titre Figure 11. Public debt-Share of indexers (%)
Crédits Source: BCB. FX: foreign exchange (mostly US dollar). CPI: consumer price index (IPCA). Selic: basic interest rate.
URL http://regulation.revues.org/docannexe/image/11322/img-12.png
Fichier image/png, 30k
Titre Figure 12. Daily exchange rate (R$/US$)
Crédits Source: BCB. Bars indicate changes on financial transactions tax.
URL http://regulation.revues.org/docannexe/image/11322/img-13.png
Fichier image/png, 37k
Titre Figure 13. Net position of nonresidents in FX derivatives (US$ billions)
Crédits Source: BCB.
URL http://regulation.revues.org/docannexe/image/11322/img-14.png
Fichier image/png, 13k
Titre Scheme 1. Economic Policy Framework in Brazil between 1999 and 2006
URL http://regulation.revues.org/docannexe/image/11322/img-15.png
Fichier image/png, 15k
Titre Scheme 2. Economic Policy Framework in Brazil between 2007 and 2013
URL http://regulation.revues.org/docannexe/image/11322/img-16.png
Fichier image/png, 24k
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Référence électronique

Rui Lyrio Modenesi, André de Melo Modenesi, Norberto Montani Martins et Patrick Fontaine, « Restructuring the Economic Policy Framework in Brazil: Genuine or Gattopardo change? », Revue de la régulation [En ligne], 17 | 1er semestre / Spring 2015, mis en ligne le 30 juin 2015, consulté le 27 mai 2017. URL : http://regulation.revues.org/11322

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Auteurs

Rui Lyrio Modenesi

Former Associate Professor at Universidade Federal Fluminenes (UFF) former Under Secretary of Economy Policy, Minister of Finance, Head of Department, Banco Nacional de Desenvolvimento Econômico e Social (BNDES), rlmodenesi@gmail.com

André de Melo Modenesi

Associate Professor at Universidade Federal do Rio de Janeiro (UFRJ) and researcher of the Conselho Nacional de Pesquisa (CNPq), amodenesi@gmail.com

Norberto Montani Martins

PhD student in Economics at Universidade Federal do Rio de Janeiro, norberto.montani@gmail.com

Patrick Fontaine

PhD candidate in Economics at Universidade Federal do Rio de Janeiro, patrick.fontaine@hotmail.com

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Droits d’auteur

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