Owing to severe crisis in the economy of the majority of the governments in Latin America adopted neo liberalization in their countries during the 1980s. Governments pinned their hopes on neo liberalization as a possible solution for stagnation in the economy as well as inflation.
As a result of adopting neo liberalization, many countries could control inflation along with growth in foreign capital. But there were some drawbacks, which could not be addressed with the help of neo liberal policies. Neo liberalization was not able to tame poverty, encourage a speedy growth, or bring about equal distribution of growth in all the sectors of the economy.
Nevertheless, sustainability of neo liberal reform in Brazil became questionable. However, one of the Latin American nations to opt for neo liberalization quite late was Brazil.
Reasons for Brazil’s delay in adopting neo liberal reform:
The reason why Brazil delayed in implementing neo liberalization in the country is given hereunder. Firstly, policies associated with import substitution worked quite well in the country due to which Brazil was not subject to so much pressure to embrace neo liberal reforms.
Secondly, neo liberal reforms were adopted so that the problem of inflation could be handled but the fact was that Brazil already had a very unique inflation indexing system in the country. Due to this, the more solvent class of people were not impacted by inflation as compared to the less privileged. Thirdly, the political scenario in Brazil was in a chaotic condition. This served as an obstacle in the implementation of the reform. People were very apprehensive as to how far the neo liberal reform would succeed.
Stabilization Plan- The Real Plan:
An existing stable economic set up raised questions on sustainability of neo liberal reform in Brazil. The reason being that people did not feel the need to implement the neo liberal reform as Brazil had already launched the stabilization plan pertaining to the Real in the year 1994. The Real plan proved to be a success. One main advantage of the Real plan was that it has equally benefited the poor. Dollars in billions had poured into the country in the form of foreign investments. Politically also, the Real plan encountered meager opposition from all quarters. All seemed to go well for Brazil with the introduction of the Real plan but it cannot be ignored that the Real plan had wholly depended on exchange rates to bring about stability in prices. Another problem faced by the country was volatility of the currency. To do away with these problems, certain constitutional reforms were required to be implemented. In the year 1997, this situation gave rise to a dispute between a set of people who felt the need for neo liberal reform and another set of people who despised it.
Areas of concern:
Few areas,which required immediate attention in the year 1997 were land distribution, education, security, health, employment and corruption. To add to the woes, corruption has become a serious cause of concern for many. With regard to trade deficit, inflow of capital balanced it but the main question lies in the fact that how long could the capital influx compensate for the deficits. It must not be forgotten that exchange rates control the Real plan. As a result, the government is compelled to maintain low rates of growth. High rates of interest along with exchange rates, pose to be a big problem in the economic growth path. It has curtailed progress in export activities thereby affecting employment to a considerable extent. The best part is that the government realizes that sustainability of neo liberal reform in Brazil is of utmost importance if the country wishes to surge ahead.
Last Updated on : 26th June 2013