Abstract

The debt crisis caused a major setback in Brazil’s economic development in
the 1980s. Stabilization policies based on contracting aggregate demand have produced an
overall stagnant economic performance that alternates periods of recession with periods
of growth cum rampant inflation. The attempts of adjustment have implied a near exhaustion
of the public sector finances and have added distortions in the pattern of financing the
economy. While the “transfer problem” can be potentially settled on the real side, on the
fiscal side obstacles are real and may indeed lead to stagnation in the 1990s. This paper suggests
a concerted action to promote growth; one that involves a stimulus to the production
of tradeables through an investments policy and a new approach to commercial and the
exchange rate policies, and a refunding of the domestic and the external debts of the public
sector to help solve the financial disarray of the Government.

JEL Classification: H63; H62; O40.