RIC? No It's BRIC (Part One)

A few posts ago I discussed the potential BRIC powers of the 21^st century who are forecasted to overtake current economic superpowers and dominate the G6 by the year 2050. Yet a mere 20 years ago, such prospects for Brazil would have seemed hopelessly optimistic and almost laughable; so how did Brazil progress so far?

                Starting in the 1950s plans to build a dazzling new capital for Brazil called Brasilia were in full swing. To finance the enormous costs, the state began printing vast sums; though this lasted only a short while it had a lasting and almost irreparable effect. Yet this kind of economic disaster was fundamentally different from the sort of problems that fiscally plague countries around the world in that this inflation stemmed from the instantaneous addition of a lot of money into public circulation and not from economic fallout. This fact would prove key in the eventual re-stabilization of Brazil.

By the 1980s Brazil suffered from a skyrocketing inflation rate that reached 80% every month. To put this figure in context let’s refer to an example on NPRs Planet Money; at 80% monthly iinflation, eggs priced at $1.00 one day would cost $1.02 by the very next day. Now that doesn’t seem too bad, right. Even by the end of a month, the eggs would cost $1.80 which though double the cost, was still affordable to many. Now let’s fast-forward to the end of the year; by the end of just 365 days, your wonderful, Sunday morning eggs would have gone from a dollar to almost $1,200 and by the end of the second year, oh just a meager $1.34 million. This meant that stores had to hire a person whose sole job was literally to walk the aisles updating the prices of items constantly. As detailed in one account, people used to race the “sticker-man” to grab what they needed before a new price got tacked on. Humorous as it seems to us, this was the startling and sad truth in late 20th century Brazil.

Through these decades, numerous leaders tried their hand at fixing the problem from freezing prices, to bank accounts to commodity production itself and yet, nothing seemed to work. Then in 1992, reform in the finance ministry ushered in a group of four advisors from the Catholic University of Rio de Janeiro including Edmar Bacha (studied inflation through grad school).