BACKGROUND

The Brazilian Economy in the 90's

• Significant and sustained reduction in inflation;
• Trade liberalization;
• Resumption in foreign direct investment;
• Massive Privatization Program;
• Preemptive financial sector strengthening
  (Proes and Proer).

Brazil: Saving Pattern

• The public disaving was financed by foreign saving.

Domestic and Foreign Savings (% of GDP)

	1991-1994	1995-1997
Private	16.52	19.79
Public	3.67	-1.61
Foreign	0.23	3.23
Total	20.42	21.41

International Crises

• A series of international financial crises, culminating in the Russian moratorium, led capital to exit from emerging markets, resulting in significant reserve losses and putting pressure on current account financing.

The Impact on Brazil

• Pressures on current account financing led to reserve losses.

 

Brazil's Reaction

• Brazil's reaction combined two approaches:

• adjustment:

• an immediate tightening of financial policies;
• a multi-year fiscal adjustment program.

• financing:

• the announcement of an international agreement with multilateral organizations and foreign governments.