Introduction

In the last two decades Brazil has undergone many changes. On the political plane, broadly speaking, the biggest has involved the challenge of finding ways and means of reconciling the aspirations embodied in the 1988 constitution with the demands of integrating the country into the global economy.

At the beginning of the 1980s, Brazil had one of the most closed economies in the capitalist world. This was the result of the industrialization model wrought in the 1950s. The closure was further exacerbated at the beginning of the 1980s, in the wake of the so-called external debt crisis. The need to generate growing trade surpluses led the last military government to devalue the currency and tighten import controls.

The new policy boosted exports and thus resolved the balance-of-payment crisis – but at tremendous economic and social cost. Economic growth practically stood still throughout the 1980s. Under the fiscal effects of the external debt crisis – most Brazilian external debt was public – and the exchange devaluations, inflation accelerated and economic indexing mechanisms began to operate at ever shorter intervals, stimulating of inflation. The attempts to reverse the process by economic measures such as price freezing failed, driving inflation to higher and higher levels. The fear that a new price freeze might be just around the corner provoked preemptive price increases, bringing the country to the edge of hyperinflation.