Abstract
Over 2004–2008 and 2009–2014 the Brazilian economy performed an average growth rate of 4.8% and 2.7% per year, respectively. After 2014, however, the economy emerged into a deep depression showing growth rates of -3.8% in 2015 and -3.6% in 2016. In view of that, this chapter aims to analyze the causes of the Brazilian crisis, based on a Post-Keynesian point of view to focus on two issues: (i) the inconsistency between the social and macroeconomic policies , in particular the exchange rate policy , adopted over 2003–2014; (ii) some macroeconomic policy mistakes and their inappropriate management by the government. At the first sight, those policies were intended to boost the agents’ confidence by creating an optimistic convention about the future of the Brazilian economy what would trigger the entrepreneurs’ animal spirits and investments. However, these policies had gone wrong and reached the opposite effect as we describe.
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Notes
- 1.
As Davis (2005) pointed out, “the genuinely revolutionary positions found in The General Theory appear to depend on important respects upon the new views Keynes developed there regarding to history and conventions” (p. 149).
- 2.
As Keynes (1973) states “a conventional valuation […] is liable to change violently as the result of a sudden fluctuation of opinion due to factors which do not really make much difference to the prospective yield; since there will be no strong roots of conviction to hold it steady” (p. 154).
- 3.
Arestis and Terra (2015, p. 534) itemized the counter cyclical measures the Brazilian government launched. On the counter cyclical role of public banks, see Chap. “The Brazilian Credit Market During the Great Recession” of this book.
- 4.
The period 2011–2016 comprehends two Presidents, Dilma Rousseff and Michel Temer . Rousseff was in charge from January 2011 to April 2016, when an impeachment took her off the cabinet. Then, in April 2016, Temer became President. Over this period, Rousseff took most of the economic policy measures; thereby, we focus on the actions she ventured.
- 5.
There were different sectorial impacts of the overvalued RER. The greater international prices of mining and agriculture commodities reduced the RER in these sectors. However, the manufacturing industry (like the textile, electronics, capital goods industries, etc.) was badly affected.
- 6.
Rossi and Mello (2016) saw a contradiction at the modernization of the consumption standard for a significant part of the Brazilian population. As a necessary condition to overcome the underdevelopment and the regressive production of the country, the supply that met this new consumption pattern came from imports enabled by the overvalued RER and so the Brazilian industry did not respond to it.
- 7.
The enhanced current account in 2016 (-1.31% of GDP) due to the recession emerged from 2014 and onward (BCB 2017).
- 8.
This and other MP and FP’s measures were Rousseff’s attempt to limber the New Macroeconomic Consensus macroeconomic policy practiced in Brazil. The Brazilian media called that attempt the New Macroeconomic Matrix. .
- 9.
The BCB also issued a so-called reverse exchange rate derivative to curb the currency appreciation. As this tool is commonly used to avoid devaluations of the exchange rate, the one used to restrain valuations was called ‘reverse’ swaps.
- 10.
These hedge contracts do not deliver American Dollars to their holders and so they do not let the foreign reserves volatile. The BCB pays in Real the amount equivalent to the change in the value of the exchange rate. Nevertheless, the contracts are a liability of the BCB and so they impact the public debt and the FP.
- 11.
Aggregate investment had lower quarter variations from 2012 onward, as IBGE (2017) reports: 2011, 7.37% of quarterly average variation, 2012, 2%, 2013, 4.85%—a soft recovery—, 2014, - 1.47% and 2015, -10%.
- 12.
General government circumscribes counties, provinces and Union. However, Union, i.e., the Federal government, owns the clear majority of debt. In Brazil, more than 95% of the gross debt was a liability of the Union over 2006–2016.
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Resende, M.F.C., Bittes Terra, F.H. (2017). Economic and Social Policies Inconsistency, Conventions, and Crisis in the Brazilian Economy, 2011–2016. In: Arestis, P., Troncoso Baltar, C., Prates, D. (eds) The Brazilian Economy since the Great Financial Crisis of 2007/2008. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-64885-9_10
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