Currency Stabilisation under Conditions of International Capital Mobility: The Case of Brazil

This paper challenges conventional interpretations of the real plan in two different ways. First, it argues that the contractionary monetary and fiscal policies that adorned its launch were largely irrelevant. Inflation was reduced primarily by the elimination of inertia and the repression of the distributive conflict through the internationalisation and liberalisation of the economy. Second, it shows that the plan is inconsistent, because it relies heavily on permanently high domestic interest rates in order to attract foreign capital. However, they destabilise the balance of payments and worsen the fiscal deficit endogenously.