Lecture Notes on Brazilian Military Government and Economic Policies

Brazilian Military Government (1964-1985)

Initial Focus: Hyperinflation

  • The primary immediate problem that the military government addressed was hyperinflation.
  • Hyperinflation defined: Extremely rapid reduction in the value of currency (e.g., prices increasing drastically within days).
  • Wealthy individuals can often protect themselves against hyperinflation through investments in real estate, farms, and other real assets.
  • Most Brazilians were wage earners without such protections and were severely affected by hyperinflation.
  • The overspending of the UDN-dominated Congress and President Goulart exacerbated the problem.

Austerity Program

  • The military government initiated an austerity program to reduce spending.
  • Reducing government spending aimed to decrease the need to monetize the deficit by printing money, thus slowing inflation.

Economic Miracle: Industrialization

  • The government aimed for rapid industrialization, building upon the legacies of Vargas and the Estado Novo.
  • Rapid Industrialization: Sought to advance basic industrialization to a larger and more complex scale
  • Focused on industries with higher technology, aiming to create a globally competitive Brazilian armaments industry.
  • Goal: To become globally competitive in manufacturing.

Import Substitution and Foreign Partnerships

  • Import substitution was maintained to protect domestic manufacturers.
  • Selected foreign manufacturers were invited to partner with government-owned or Brazilian-owned companies.
  • The primary interest was acquiring technology rather than capital.
  • Offering market access was a key incentive for foreign companies to share advanced technology.

Technology Concerns

  • Proprietary technology needs to be protected.
  • Sharing technology involves risks.
    • Example: The story of Mark Zuckerberg

Market Strategy

  • Closing the market to entice outsiders with technology to partner with domestic firms.

Nuclear Ambitions

  • Brazil was interested in nuclear technology during the Cold War era.
  • This involved uranium enrichment.
  • E=mc2E=mc^2 is the formula for mass-energy equivalence.
  • Achieving efficient uranium enrichment is a complex technological problem.

Economic Plan

  • Reduced spending and government deficits to combat hyperinflation.
  • Implemented tax reforms and tax cuts.

Banking System Expansion

  • Addressed the low savings rate by expanding the banking system through government intervention.
  • Government created banks to lend to policy priorities, including government-owned companies.
  • Government borrowed money internationally at lower interest rates due to its strong credit.
  • The government then provided artificially low-interest rates to borrowers, subsidizing capital.
  • This approach facilitated the growth of targeted businesses and attracted international technology.
  • Stalin's economic policies serve as a comparison.

Government Intervention

  • Government banks offered directed lending and subsidized rates.
  • Military governments heavily intervened in the market.

Wage and Productivity Increases

  • Real wages increased, especially for the urban working classes favored by the political system.
  • Productivity increased due to more output per unit of input.
  • Improved productivity is key to raising income per worker, household, and capita.
  • The increase in productivity is expressed as a function: Income=f(Productivity)Income = f(Productivity)

High-Tech and Free Trade

  • Increased productivity can be achieved by adopting high-tech methods.
  • Partnerships were important for accessing high technology.
  • Emulation of successful techniques can boost productivity.
  • Free trade leads to increased productivity among surviving firms by exposing them to new technologies and methods used by their foreign counterparts.

Political Repression

  • Opposition was repressed, especially after 1968.
  • Individuals considered subversive or holding the wrong ideals were arrested, interrogated, incarcerated, or disappeared.

Armed Opposition

  • The regime's actions after 1968 led to armed opposition groups.
  • Some groups, often composed of college students, sought to resist the military government from remote areas like the Amazon.
  • Military was aware of these plans and suppressed them.

The Araguaia Guerrilla

  • College students plotted to start a revolution from the Amazon rainforest.
  • The military was informed and prepared for their arrival.
  • Soldiers disguised as civilians infiltrated the area.
  • Many guerrillas were captured, interrogated, and killed.
  • José Genoino, a politician from the Workers' Party, was captured in Araguaia.

The End of the "Miracle"

  • The economic miracle lasted until 1973.
  • The 1973 war in the Middle East caused an adverse oil shock.
  • Energy became expensive.
  • Brazil had heavily indebted itself to finance government-led economic expansion.

Social Policies and Improvements

  • Per capita income increased due to rapid growth projects.
  • Social policy was inclusive for a politically exclusive system.
  • Material conditions improved, including life expectancy, infant mortality rates, literacy rates, and medical arts.

Distant Sound and Apertura

  • Some authors use the term "apertura" for both "distant sound" and the broader political opening.
  • In 1974, the military realized the failure of their economic policies and the consequences of violent repression.

Economic Crisis

  • The government faced high deficits, indebtedness, and inflation.
  • Government-owned businesses were unproductive.
  • Productivity had stopped improving, and capital investment stalled.
  • These companies could not efficiently transform inputs to outputs compared to foreign companies.

Protected Industries

  • Many Brazilian companies were protected from foreign competition since 1930.
  • Government ownership of unproductive companies burdened society through taxes and inflation.

Telephone Monopoly Example

  • Every household had the right to a telephone, provided by a government monopoly.
  • There was a long wait (about ten years) to get a telephone.
  • Payphones were common in plazas and street corners, with long lines of people waiting to use them.
  • People used metal slugs called "fichas" to operate the payphones.
  • There was a secondary market for monopolized telephone lines.

Privatization Efforts

  • Computers and shipping lines also suffered from inefficiencies and lack of investment.
  • COBRA, the national computer monopoly, was privatized.
  • Lloyds, the Brazilian shipping line, was also offered for auction but failed to attract buyers.

Software and Coding Capabilities

  • Brazil had advanced software capabilities in high-speed reconciliation of bank accounts due to high inflation.
  • Coding skills were highly developed to protect money overnight against inflation.

The "Abertura" (Political Opening)

  • In 1974, the military began to loosen political repression.
  • The MDB (Brazilian Democratic Movement), the loyal opposition party, started winning elections.
  • Historians mark the return of political parties as the beginning of the "abertura."
  • The process of reversing political repression and transitioning back to democracy lasted from 1974 to 1985.

Debt Crisis (1980s)

  • Second oil crisis in 1979 accelerated the process.
  • A debt crisis affected Brazil and other Latin American countries.
  • Countries could not repay loans from foreign bankers.
  • Printing money to cover the gap led to high inflation.
  • Mexico led the way in defaulting on its debt.
  • Brazil followed suit in 1983, prioritizing holding onto its remaining money rather than paying off debts.

Washington Consensus

  • The Washington Consensus was a recipe list for governments to get back in good shape financially.
  • It came out of experiences in helping Latin American governments manage debt.

Amnesty and Transition to Democracy

  • The military negotiated an amnesty deal, protecting themselves and leftist guerrillas from legal repercussions.
  • Legalistas, those who believed in adhering to the rule of law, helped ensure civilian participation in the government.
  • Abitura involved removing institutional acts and returning to democracy with freedom of political association.

International Pressure

  • Support for human rights grew internationally, especially in the U.S. and the U.K.
  • The death of a radical activist increased international attention.
  • President Carter's emphasis on human rights in foreign policy affected the Brazilian military.
  • U.S. military assistance was cut off, leading Brazil to seek military self-sufficiency.

Post-Military Government Figures

  • Cardoso, a college professor who was exiled, became president of Brazil.
  • Under Cardoso, Brazil defeated hyperinflation.
  • Dilma Rousseff, a former guerrilla member, became president of Brazil.
  • Lula, a former student organizer, also became president.

Hyperinflation Plans

  • In 1986, economists tried to freeze prices - which failed.
  • Another plan in 1990 blocked bank accounts.
  • A more sophisticated plan was developed in 1993-1994 to combat hyperinflation.

Key Dates and Terms

  • 1964: Military government takes power.
  • 1968: Intensified political repression (Years of Lead).
  • 1973: First oil shock disrupts the economic miracle.
  • 1974: Start of the