Friday, April 27, 2012

When Brazil Defeated Hyperinflation

Brazil hyperinflation graph
Brazil's Cardoso Defeats Hyperinflation

One of the keys to Brazil's emergence as a growing economic power was the country's defeat of hyperinflation in the 1990s.  While many people associate hyperinflation with Zimbabwe, in the late 1980's and early 1990's, Brazil routinely had inflation of 2,000% - 3,000% per year.  

The key to defeating inflation was the ascendancy of Itamar Franco to the Presidency of Brazil in 1992.  Franco selected Fernando Enrique Cardoso as his finance minister, and together Franco and Cardoso introduced a new currency called the "Plano Real" that replaced the country’s old currency, the cruzeiro.  The real was introduced in 1994, and along with government efforts to control spending, inflation dropped from over 2,000% in 1994 to 22% in 1995 as the chart to the left demonstrates.  Since 1995, inflation has continued to largely trend steadily downward.  Cardoso moved on to serve two terms as Brazil's President himself, and by the time he left Office in 2002 the economic and financial reforms he had established were firmly in place, and were largely carried on by Cardoso's successor as President Luiz Inacio Lula da Silva.   For those interested in learning more about Mr. Cardoso, his interview with the Financial Times of the UK is quite worthwhile.

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