Managed care for Brazil's banks

The focus on financial sector reform in emerging market economies often centers on the need to reduce government involvement in markets. Individual countries have taken many different approaches toward reaching this goal. In Brazil, financial sector reform has entailed the need for a large governmental role in structuring reforms, especially in the banking sector. This article explores a key aspect of Brazil's financial liberalization-the reform and opening of the domestic banking sector. ; Efforts to liberalize trade that began in the late 1980s and early 1990s in Brazil were hampered by economic and political concerns, chiefly inflation. The Real Plan, introduced in 1994, provided economic stabilization but did not automatically improve the outlook for the financial sector. Instead, policymakers were forced to initiate a managed restructuring of the private and public banking sectors. ; This article first discusses policy choices facing government decision makers in opening domestic financial sectors and then examines the basic features of Brazil's banking sector reform within the context of other changes and policy objectives taking place in Brazil. The author concludes that Brazil's banking reform promoted a sweeping reorganization of the banking sector and effectively averted a banking crisis. At the same time, deepening and consolidation of reform in the banking sector will remain incomplete until new legislation can be passed and fiscal reform is further advanced.