No other nation has experience so much inflation, persistantly, over a long period as Brazil has. Hyperinflation in other countries has produced astronomical price increases, but hyperinflation is a shortlived process, whereas Brazil's inflation has operated for decades. Brazil also has a long history of high foreign debt, going back to the 1920s, and in the early 1990s Brazil had the world's largest external debt, at a level of about $118 billion.
The following discussion traces the modern development of Brazil's combined inflation and debt problems, and seeks to identify their origin. The discussion begins by outlining the current situation, followed by a chronological account, with particular focus on inflation. Consideration is given to a theory of "inertial" inflation, developed by Brazilian economists, and the essay concludes with a proposal that inflation and debt are both rooted in Brazil's highly unbalanced economy.
Brazil recently submitted a "Letter of Intent" to the International Monetary Fund (IMF), in order to demonstrate its improved creditworthiness. This Letter of Intent summarized the progress that Brazil has made in the last couple of years in reducing its rate of inflation:
Continued progress has been made in reducing inflation. Following a temporary acceleration in the middle of 2000 ... administered prices (including electricity, telecommunication, and transport tariffs, and prices of oil products) and of adverse weather conditions ... inflation declined again in the remainder of the year (International Monetary Fund, 2001).
The Letter of Intent went on to note that consumer prices (IPCA) had risen by 6.0 percent during 2000, as compared to 8.9 percent in 1999, while the general price index (IGP-DI) had increased by 9.8 percent in 2000, down from a 20 percent increase in 1999. The difference was attributed to a "continued increase in the price of tradable goods" (International Mon...