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Exchange Rate In Brazil. Essay

5918 words - 24 pages

Table of ContentsIntroductionLooking Back: Brazil's History - 44 Years in a Nut Shell1964-1984: The Military Regime1985-1992: Great Names, Bad Economics1993-1998: The Real Plan1999-2008: Crisis and RecoveryOur Analysis of Brazil'sExchange Rate HistoryLooking Forward: Recommendations - What to Do and What Not to DoAppendixSources CitedIntroductionAs 2010 progresses, Brazil is considered among the front runners in the race for recovery of the 2008 global crisis and championed as the poster child for emerging markets. However, the current prosperous situation Brazil revels in as of late could not have transpired without the country enduring substantial problems the course of their recent history. As George Santayana was quoted saying; "those who cannot learn from history are doomed to repeat it". After ignoring their history books from many years, Brazil appears to have reaped the benefits of their checkered history.In order to learn from and appreciate the extensive improvements made by Brazil, we reflect back their many previous failures. To best outline the transitions, we trace Brazil's history of economic and political struggles back to 1964 and follow the data up to present times (usually 2008), data permitting. This allows for a careful review and analysis of three major time periods 1964-1985: the military regime period, 1985-1999: a return to democratic elections and the subsequent inflationary crisis, and finally, 1999-to present day, in which Brazil made an astonishing recovery and now leads developing countries in gaining global presence.Throughout Brazil's colorful history, therein lies a common theme of exchange rate policies as the focal point for economic and political struggles, and are thus being politically motivated. In this paper, we first show these motivations as seen with the military regime rising to power in 1964, trying to maintain authority and control, and how this weighted heavily on the types of actions undertaken. Subsequently, this paper sheds light on the challenges facing a newly elected democratic party, as Brazil shifts back to a democratic system. Again, policy changes and exchange rate regimes are heavily influenced by the motivations of the President and his supporters. Faced with difficult decisions such as whether to fight inflation or protect Brazil's international competitiveness, politicians seemed most motivated by whatever would get them into, or back into, political office.Another common theme of many of the economic policies is a sudden appreciation of the domestic currency, suddenly increasing economic activity and output, thus leading the population to believe their politicians had solved many of the countries problems. This is often the result of the government needing a "quick fix", and employing temporary exchange-rate-based stabilization programs. However, the results, while usually lasting long enough to get a candidate back into office, are short lived. Soon after, the effects of these...

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