Was there an alternative to the brazilian crisis?
Abstract
In difference from Asia, high interest rates and stable exchange rates associated
with the Real Plan did not produce a corporate debt deflation because of the low corporate
indebtedness in Brazil. Instead high interest rates caused both the foreign and fiscal balances
to deteriorate, reducing confidence. Any attempt to reduce interest rates brought the threat
of currency weakness and the risk of inflation. The crisis was due to the reliance on high
interest rates to attract capital flows which were insufficient to produce investment which
gave a satisfactory rate of growth.
JEL Classification: F41; F65.
Keywords: Financial crises capital flows Plano Real globalization