Brazil: The Fine-Tuning of Trade Liberalization

Beginning in the late 1980s and throughout the last decade the Brazilian economy was subject to structural and regulatory reforms. Developmental policies that the nation followed for many decades were adapted without dismantling the web of interests installed in the Brazilian State. The adoption of policies aiming at the liberalization, privatization, and deregulation of domestic markets was at first caught in the middle of an institutional crisis, and was later subordinated to macroeconomic stability objectives. Pragmatism rather than a blind conviction of free trade benefits has guided the design and the implementation of Brazilian trade policies. Understandably, macroeconomic variables were the most influential factors in the formulation of entrepreneurial strategies. Over a period of less than 10 years, Brazilian society had to adjust to three radically different situations. In this brief interval, the economy moved from decades of highly distorted domestic prices — that included periods of hyperinflation — to inflation control combined, however, with an overvalued domestic currency (Real), the escalation in public debt and high interest rates. The third phase started in January 1999, when the reverberation of the international financial crises of 1997–98 led to the decision to float the Real freely, resulting in its devaluation.