nomic picture. By 1994, the United States, by executive order intervened to support the Mexican peso, which was devalued in that year in the context of a large-scale banking and currency crisis.
The political economy of Brazil came under increasing scrutiny in the mid-1990s, particularly after the Mexico crisis. In the 1980s, Brazil flouted World Bank debt-service obligations, first because its internal business interests, geared toward financing export activity, could favor confrontation with external institutions for the purpose of plowing capital "reserves" accumulated in foreign trade back into Brazil's domestic economy (Haggard & Kaufman, 1990), and second because it successfully undertook economic austerity measures that brought inflation under more control than in the past. In 1995, on a state visit to the US, Brazil's president, Fernando Henrique Cardoso, went out of his way to explain to the Anglo-American investment community how different Brazil was from Mexico. Brazil's economy and political system were stable and could not slip into a currency crisis like that of Mexico.
The principal basis on which Cardoso made his explanation was the Real Plan, or Plano Real. Formulated in 1994 by Cardoso, who was at the time Brazil's finance minister, Plano Real changed Brazil's basic currency from the cruzeiro to the real, and valued the real at 2.75 x 101% of the cruzeiro. The plan also "pegged" the value of the real to the US dollar. Between 1994 and 1998, inflation, which peaked in 1994 at the annualized rate of 2,500-2,700%, was brought down to 6% by mid-1998 (Weinberger, 1998; Steady nerve, 1998) and as far down as 3% by the end of that year (Epstein & Biderman, 1999).
The Real Plan entailed a philosophy of economic austerity with regard to public spending, privatization of selected state-run industries, and the opening up of an economy historically distinguished by statist corporatism to foreign competition and foreign c...