An Analysis of Brazil's Economy and Finance Essay

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Brazil with a population around 201,032,714, is the largest South America’s country. Brazil’s most important components of its GDP are service revenues, wide industry sector and its successful agriculture.

For More than two decades Brazil suffered badly from high inflation, economic decline, domestic and foreign debt. In 1993, country’s Inflation reached 30 percent a month and as a result the country wouldn’t sustain growth. After many unsuccessful plans to control the inflation, finally Real Plan of Fernando Henrique Cardoso, minister of finance, worked out and brought the inflation down to a single digit.
Today, Brazil with a GDP of $2.533 trillion is the 7th largest economy in the world and it is also considered
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Cardoso’s team, after a thorough study, came to the conclusion that to control the inflation they need something more than changing the fiscal and monetary policies. In fact, people were used to high inflation, regardless to the reality they were expecting higher prices and wages every month, as a result Cardoso understood that he has to change this expectation. In order to do so, he came out with a plan that consisted of three stages:
The first Stage which took about 3 months of negotiations was budget balancing; Government decided to adjust its budget expenses and stop money printing and unnecessary loans. Tight monetary policies and privatization of state banks and trade liberalization were done in this stage.
The second stage was the introduction of URV (Unidade Real de Valor). URV’s value were determined by USD’s value, and it was adjusted every day by the central bank to keep its real value. The innovation about URV was that, it was not a real money or currency, it was a virtual one and nobody had a prejudgment about it. Little by little every contract and price were converted into URV and the reports became base on URV, a currency which does not lose its value. As a result the Brazilian economy was indexed by URV and prices became stable. During this 4 months prices started to align and gain their real value. People got used to stable prices and they became ready to accept a stable new currency. Then the introduction of the new currency, Real. As

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