Who paid the bill? Adjustment and poverty in Brazil, 1980-95

The difficulties most Latin American countries have experienced in returning to sustained growth after the world recession and debt crisis of 1982 have surprised and frustrated many observers. Concern is increasingly expressed about the social costs of this period of recession and adjustment, especially for the poorest sectors of the population. Nowhere is this concern better placed than Brazil, with roughly 45 million people living in households below the poverty line in1987. By effectively failing to adjust internal demand to the decline in external funds, Brazil set records with respect to its neighbors in per capita growth and inflation between 1982-88. Brazil, by choosing an expansionary fiscal path, traded growth in the middle years of the decade for inflation and a larger debt three years later. This study looks at the impact of that tradeoff on poverty alleviation in Brazil. Macroeconomic policy affects few people directly. Instead, macroeconomic policy operates through factor and product markets to affect the functional distribution of income, and through the functional distribution, affects individual income, depending on the ownership of factor incomes among households. For most poor households, the most important source of income is the labor market. The approach to analyzing the question of the impact of Brazil's macroeconomic choices on the poor therefore focus on the labor market outcomes these policies stimulated.