Brazilian Business Winners: Top Revenue Sectors

 The gov's tryna reduce domestic demand and flex on the market by raising interest rates and devaluing exchange rates, but it's causin' mad fiscal problems. First, like, as mentioned above, by 1983 most of the Brazilian external debt had been totally nationalised as foreign creditors and the domestic private sector were like seeking protection with the Brazilian government, you know? Yo, like, in addition, the maxi-devaluation in '83 caused, like, even more increase in public sector indebtedness. Secondly, like, by making the public sector the main external debtor, the adjustment created, like, a link between public external debt and public internal debt. Ya feel me? 

To flex its debt, the BACEN had to cop the foreign exchange generated by the private sector. 

OMG, like the adjustment was sooo strict, so the only way to pay off the debt was by flexing on that public internal debt, ya know? OMG, like check out Table 35 below! Public debt went up by a whopping 20% of GDP in just two years starting from 1982. Crazy, right? OMG, the public debt went through the roof and totally messed up the current deficits by making interest rates go up. It's cray cray! In the first years of the adjustment, the gov tried to flex and make up for this increase in public deficits with a combo of tax hikes and spending cuts. OMG, it totally flexed and reduced public operational deficits by 4 percentage points of GDP (Table 36 below). #lit This policy was, like, so not enough to fix the problems caused by the lame rules. First, like, the interest payments on public debt were totally skyrocketing with the interest rates, you know? Second, high interest rates were like, totally causing inflation and recession and both were like, making public revenues go down and making businesses increase their prices even though their sales were going down (more about it later, fam). Inflation be like, it straight up doubled compared to 1982 and reached a whopping 235% per year in 1983, like dang, almost hitting that hyperinflation vibe.

OMG, like, Brazil's whole setup is so confusing, you know?

The way they set prices and interest rates is just mind-boggling. The fact that indexed money be like totally made a lit connection between higher real interest rates and faster price growth, ya know? OMG, like the orthodox measures to control inflation by raising interest rates actually backfired and like totally made inflation worse. SMH. Although it wasn't just cuz of theoretical beliefs or not knowing the prob that policymakers insisted on keeping real interest rates high and letting inflation burst, both those factors played a part. The real tea is that the whole situation was lowkey because the economic policy was hella stuck in the foreign currency trap set up by the net transfer abroad. OMG, with the net transfer regime, foreign currency became the lit asset in the Brazilian context so that any chill monetary policy - like a drop in the real interest rate - would lowkey threaten the economy 'cause the bondholders would flex and convert their cash money into foreign currency and press the BACEN's foreign holdings. The vibe among Brazilian economists was that the financial craziness was all about the indexation, especially the exchange rates (Carneiro 2002, p.206; Lopes 1985). Like, basically, to keep the economy chill, it was hella important to keep the exchange rates steady, so that we could lower the interest rates and stuff. In 1986, the Cruzado Plan was like, "Yo, I got this diagnosis, fam." OMG, along with de-indexing measures and the freezing of prices and wages, it totally flexed exchange rates and lowkey reduced interest rates. As like, ya know, it was like totally not vibin' with the money moves they were droppin' on the economy.100 OMG, like when the economy started booming again and the rules got less strict, the trade surpluses had to go down. 

After the Cruzado Plan flopped, inflation went cray cray and got even more unstable throughout the rest of the decade. 

The anti-inflation plans in '87 ("Bresser Plan") and '89 ("Summer Plan") tried to de-index the economy, while keeping devaluation and high nom and real interest rates to secure the trade surplus and a minimum level of reserves. In fact, high interest rates became the government's only tool for controlling inflation, but like, it didn't really work lol. This whole situation of financial instability is like, so not chill. The crazy high interest rates are seriously messing things up by making it harder for people and businesses to invest and grow the economy in the long run. It's a major bummer, tbh. But like, the struggle of instability costs was, like, totally not fair. In da 80s, with all da exchange n' money stuff goin' on, da gov funded da makeover of companies, both financial n' non-financial, but it made da state hella fragile. But, like, instead of funding cool changes for the private sector to come out of this crisis stronger, the public sector ended up funding the rise of the rentier vibes in the private sector. The next two subsections spill the tea on these consequences of the adjustment policies, which have been lowkey ignored in neoliberal accounts. Either more stuff was being imported or some of the exports were being sold in our own country. So the government had to dip into its savings to pay for all the money going out of the country. OMG, BACEN's foreign reserves took a major L, which totally messed up their game of protecting the value of our currency. They couldn't even keep the exchange rate on fleek for a long time. SMH.LOL Yo, like, real talk, lower interest rates made bondholders start flexin' with foreign currency against the domestic currency, takin' mad advantage of the weak official reserves. It's wild, man.