THE BRASÍLIA CONSENSUS: A NEW MODEL FOR LATIN AMERICAN DEVELOPMENT? By ZACHARY ASHER COHEN A THESIS PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS UNIVERSITY OF FLORIDA 2011 1 © 2011 Zachary Asher Cohen 2 For my family, thank you all the support you have given me in my academic endeavors and travels. 3 ACKNOWLEDGMENTS I thank my friends Brian Moorman, Elena Val, Ana Luiza Gonçalves Ferreira, Chelsea Braden and Paul Deis for our numerous conversations concerning international politics, economics and development policy from which I started to form the basis for this model. I would also like to thank all of my colleagues in the Political Section at the United States Embassy in Brasília, with whom I had the pleasure of working and where our worked helped me discover the nexus of the model which I present in this thesis. I would also like to thank my adviser, Terry McCoy, for the guidance and direction that he has given me during my time at the University of Florida. Finally, I would like to thank Terry Miller for all of the help and advice he has given me over the years. 4 TABLE OF CONTENTS page ACKNOWLEDGMENTS ................................................................................................... 4 LIST OF TABLES ............................................................................................................. 8 LIST OF FIGURES ........................................................................................................... 9 LIST OF ABBREVIATIONS ............................................................................................ 11 ABSTRACT .................................................................................................................... 15 CHAPTER 1 BRAZIL, O PAÍS DO FUTURO OR RECYCLING ITS PAST? ................................. 16 1.1. The Consensus ................................................................................................ 18 1.2. Has Brazil Seen Real Gains? .......................................................................... 20 1.3. Brazil as a Global Player .................................................................................. 23 1.4. Methodology .................................................................................................... 24 2 THE SARNEY, COLLOR AND FRANCO ADMINISITRATIONS ............................. 26 2.1. Stagflation and Hyperinflation to the Real Plan ............................................... 26 2.2. The Sarney Administration and the Return to Democracy (1986-1990) .......... 26 2.2.1. Economic Policy - The Battle with Inflation ............................................. 29 2.2.1.1. The Cruzado Plan ......................................................................... 30 2.2.1.2. The Collapse of the Cruzado Plan. ............................................... 33 2.2.2. Handling the Debt Crisis ......................................................................... 35 2.2.2.1. Brazil’s foreign debt ...................................................................... 36 2.2.2.2. The Brazilian Proposal to Resolve the Debt Crisis ....................... 38 2.2.3. The End of the Sarney Administration .................................................... 40 2.3. Collor - The Washington Consensus Comes to Brazil (1990-1992) ................ 42 2.3.1. The Collor Plan ....................................................................................... 44 2.3.2. Brazil’s ‘Competitive Insertion’ into the Global Economy ....................... 47 2.4. Itamar Franco and the End of Inflation (1992-1994) ........................................ 51 2.4.1. The Real Plan ......................................................................................... 52 2.4.2. Franco’s Hands-off Foreign Policy ......................................................... 57 2.4.2.1. United Nations .............................................................................. 58 2.4.2.2. GATT ............................................................................................ 59 2.4.2.3. Regional and extra-regional integration ........................................ 59 2.5. The Continuity of the First Three Civilian Presidents ....................................... 62 3 THE FERNANDO HENRIQUE CARDOSO ADMINISTRATION (1995-2002) ......... 67 3.1. Cardoso’s Move to Planalto ............................................................................. 67 5 3.2. Reverberations of the Real Plan ...................................................................... 68 3.2.1. Asian Financial Crisis ............................................................................. 71 3.2.2. The 1998 Crisis – Foundation for the 21st Century. ................................ 73 3.3. Regional Integration ......................................................................................... 76 3.3.1. Mercado Comum do Sul ......................................................................... 77 3.3.2. Initiative for the Integration of Regional Infrastructure in South America .................................................................................................. 79 3.4. Concluding Remarks ........................................................................................ 82 4 THE LULA ADMINISTRATION (2003-2010) ........................................................... 86 4.1. Economic Continuity versus Social Justice? .................................................... 86 4.2. The Partido dos Trabalhadores’ “Decent Brazil” .............................................. 89 4.2.1. Lula’s Tightrope Walk with Macroeconomics ......................................... 90 4.2.2. Social Justice .......................................................................................... 93 4.3. Brazil – The Soft-Power Power ........................................................................ 98 4.3.1. Regional Integration ............................................................................. 102 4.3.2. Extra-regional Integration ..................................................................... 104 4.3.2.1. South-South Diplomacy .............................................................. 104 4.3.2.2. Universalism ............................................................................... 108 4.3.2.3. Global Governance ..................................................................... 110 4.4. Lula’s – The Impetus for Equitable Change ................................................... 112 5 THE CURRENT BRAZIL COMPARED TO THE BRAZILIAN MIRACLE ............... 115 5.1. Overview ........................................................................................................ 115 5.2. The ‘Brazilian Miracle’ .................................................................................... 115 5.2.1. Export Promotion .................................................................................. 116 5.2.2. The Aftermath of the ‘Brazilian Miracle’ ................................................ 118 5.3. Brazil’s “Second Chance” .............................................................................. 121 5.3.1. Sarney and the Cruzado Plan (1985-1990). ......................................... 121 5.3.2. The Collor Administration (1990-1992). ................................................ 124 5.3.3. Franco – Hyperinflation to the Real Plan (1992-1994). ........................ 126 5.3.4. The Cardoso – The Crawling Peg to Floating Currency (1995-2002) .. 127 5.3.5. The Lula Administation – Inflation Targeting (2003-2010) .................... 129 5.4. Is the Current Period Different? ..................................................................... 131 6 BRAZIL – A NEW MODEL FOR LATIN AMERICA? .............................................. 133 6.1. Brazil’s Path to Success ................................................................................ 133 6.2. Economic Policy. ............................................................................................ 134 6.2.1. The Sarney Administration (1985-1990). .............................................. 134 6.2.2. The Collor Administration (1990-1992). ................................................ 135 6.2.3. The Franco Administration (1992-1994) ............................................... 136 6.2.4. The Cardoso Administration (1995-2002) ............................................ 137 6.2.5. The Lula Administration (2003-2010) ................................................... 138 6.2.6. Dilma and Beyond (2010-?) ................................................................... 142 6 6.3. Foreign Policy. ............................................................................................... 142 6.4. Applicability of the Brasília Consensus to Other Latin American Countries ... 146 APPENDIX A THE NEO-STRUCTURALIST APPROACH TO INFLATION ................................. 149 B PUBLIC ENTITIES OF THE FEDERAL GOVERNMENT DISSOLVED BY THE COLLOR PLAN ...................................................................................................... 151 C CRUZADO PLAN, COLLOR PLAN AND WASHINGTON CONSENSUS ............. 152 D FOREIGN MINISTERS OF THE “NEW REPUBLIC” ............................................. 154 E IMPORTANT REGIONAL AND INTERNATIONAL AGREEMENTs ...................... 155 F INTEGRATION OF REGIONAL INFRASTRUCTURE IN SOUTH AMERICA ....... 157 LIST OF REFERENCES .............................................................................................