O Real plan it was a big Brazilian economy stabilization plan released during the government of Itamar Franco. In the first half of 1994, the measures that managed to stabilize the Brazilian economy and put an end to the hyperinflation crisis that had hit the country since the 1980s.
The person responsible for Plano Real was the sociologist Fernando Henrique Cardoso (FHC), who received authorization from the president to carry out the reforms freely. He assembled a team of economists who studied the necessary measures and gradually implemented them. In July 1994, the new currency, called “real”, entered into force and, by the end of that year, Brazilian inflation had already stabilized.
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Historical context of the Real Plan
![The Real Plan was carried out during the government of Itamar Franco (second highlighted from left to right).[1]](/f/76780ed162d4cd4c23ba4df1d3c00284.jpg)
The Real Plan was born during the government of Itamar Franco, president of Brazil between 1992 and 1994. Itamar Franco was a politician from Minas Gerais who was invited by
Fernando Collor de Mello to be his deputy during the electoral contest in 1989. Despite the friction between Itamar and Fernando Collor, the slate supported itself and was elected to assume the presidency of Brazil.Itamar Franco officially assumed the presidency, in December 1992, when Fernando Collor suffered impeachment because of the corruption scandals that broke out in the first two years of that government. When Itamar took over, the big issue that mobilized the country was the return to the path of economic stability.
The economic crisis that the country was experiencing in the 1990s was the result of the managements of the period Military dictatorship. The impacts of the dictatorship on our economy were hard and, in the 1990s, the country suffered from the external indebtedness, one inflationhigh which directly impacted the increase in the cost of living for workers.
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Since the country had redemocratized, five major currency stabilization programs had been accomplished. These programs focused on the problem that most affected the country: inflation. In 1993, inflation in Brazil reached the mark of 2000% and, in 1990, it had been 6800%.
The programs prior to the Real Plan were called Crusader, Bresser, Summer, Color I and Collor II. All of them had the proposal to freeze prices to get around the inflationary problem as a common agenda and all of them failed, making the problem persist in the country. This was the favorable context for the entry of Fernando Henrique Cardoso.
Who implemented the Real Plan?
The Real Plan was implemented, as mentioned, during the government of Itamar Franco. Before nominating FHC to the Ministry of Finance, Itamar had tried to reverse the economic situation with other names, but without success. In May 1993, Itamar decided to call FHC, until then Minister of Foreign Affairs, to assume Ministry of Finance. Once he was installed in the portfolio, FHC began to form his team.
Among the names chosen by FHC are economists who had worked in the Cruzado Plan, such as AndrewLarainRezende, persianArida etc., an economic plan launched by sarney in 1986, but that had failed. As noted by historians Lilia Schwarcz and Heloísa Starling, the Plano Real was publicly debated|1|. The idea was to give the population confidence to adhere to the changes that would be implemented.
Real plan
![Fernando Henrique Cardoso was the finance minister during the implementation of the Real Plan.[2]](/f/a4b8b6e3f5d9524333dc7442b4e95018.jpg)
The Real Plan was implemented in stages throughout 1993 and 1994. The changes proposed by FHC's team broke with the measures adopted by other governments and the plan generated mistrust, especially politically. It was necessary to secure the support of Congress for the main measures of the plan to be implemented.
There was resistance from parties such as the Workers' Party (PT), which believed that the measures determined in the Real Plan would harm workers. Reviews were made because of the tax increases proposed by the plan, the use of a virtual currency that made the transition from the real to the real cruise, etc.
The plan was implemented in three steps foreseen by FHC itself. The first phase was the moment of stabilization of public accounts, the second phase the launch of the Real Value Unit (URV) and the third phase was the moment of the effective launch of the real. When the plan was implemented, however, the results were quick. At the end of 1994, the monthly inflation was already 1%, unlike June which had been almost 50%.
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What were the main measures of the Real Plan?
As mentioned, the Real Plan was divided by FHC and his team into three phases that progressively carried out the necessary measures. The first proposed change was aimed at balance the public accountsThus, the government set targets to reduce public spending and set privatizations as a goal to increase state revenue and reduce spending.
The government has also imposed a series of tax increases (5% in federal taxes) and promoted a reform in the budget of the Union, making certain taxes unrelated to the destinations stipulated by the 1988 Constitution. With this measure approved in Congress, the government was able to freely manage 20% of the resources destined to areas such as education and health, for example.
The Real Plan also promoted the deindexation of the economy, that is, prices and values would not have daily adjustment based on inflation, since this continuous adjustment was one of the causes of Brazilian hyperinflation. The government's proposal was to de-index the economy from inflation and index it to the dollar, a stable currency.
was encouraged to economic opening of the country so that the area of services could grow and the national industry could modernize. The idea was to ensure that there was no shortage of goods on the market by stabilizing the economy and preventing prices from rising again. As a result, one of the measures taken was the reduction of import tariffs, aiming, above all, for the industry to be able to modernize itself. happened too reformsbanks, causing banks to have a reduction in access to credit.
Finally, the most important changes that were marked was the currency change proposed by the economic team of the government of Itamar Franco. In March 1994 the Real Value Unit (URV), which would make the transition to Real, still in 1994. The URV was a unit of account that, between March and July 1994, stipulated the reference values for the conversion of the real to the real cruise. These values were stipulated by the government itself.
The real was effectively released on July 1, 1994 and it was stipulated that 1 real would be equivalent to 1 URV which, in turn, was equivalent to 2750 real cruises. As mentioned, the support of the new currency happened by indexing it to the dollar, which guaranteed its stability and security. For this, the government needed to increase foreign exchange reserves and attracted dollars to the country, since it was necessary to have a stock of dollars to back the real.
The real proved to be a stable currency, since it was based on the exchange rate variation of the dollar. As mentioned, the real and the entire plan that supported it managed to lower inflation in Brazil and, in July, it was below 10% and at the end of 1994 it was already at 1% per month|2|.
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Consequences
Economically speaking, among the positives and negatives of the Real Plan, we can highlight:
It stabilized the Brazilian economy and brought inflation under control;
Paired the national currency with the dollar;
It kept the worker's purchasing power low;
Unemployment increased.
From a political point of view, the success of the Plano Real endorsed Fernando Henrique Cardoso for the 1994 presidential race. As finance minister, FHC was marked as the main responsible for the Real Plan. As a result, FHC left the Ministry of Finance, in March 1994, in order to run for the presidential election.
FHC's popularity was so great that he was elected president in the first round, with about 55% of the votes, totaling more than 34 million votes. At presidency, FHC implemented new changes to the Real Plan.
Image credits
[1] FGV/CPDOC
[2] A.PAES and Shutterstock
Grades
|1| SCHWARCZ, Lilia Moritz and STARLING, Heloísa Murgel. Brazil: A Biography. São Paulo: Companhia das Letras, 2015, p. 496-497.
|2| MOTTA, Marly. Stabilization and stability: from the Real Plan to the FHC administrations (1993-2002). In.: FERREIRA, Jorge and DELGADO, Lucilia de Almeida Neves (eds.). Republican Brazil: the time of the New Republic – from the democratic transition to the 2016 political crisis. Rio de Janeiro: Brazilian Civilization, 2018, p. 228.
By Daniel Neves
History teacher
