Economic policy options

Abstract

Through empirical and theoretical evidences, this article identifies and appraises four relevant policy mistakes incurred during the Real Plan. The first mistake was the common belief that strong currency means strong economy; the second, because of the inflationary memory of the recent past, was the fear that devaluation of the exchange rate would be translated fully into price increases; the third error asserts that, in a globalized world, the existence of sufficient foreign savings would finance any level of current account deficit; the fourth misjudgment asserts that the increase of the overall productivity of the Brazilian economy could be pursued by the overvaluation of the exchange rate and by the expanding insertion of the multinational corporations. Those mistakes contributed to increase the foreign constraints, historically the main restraint to Brazilian development.