Volume 43, Number 171,
October-December 2012
Argentina and Brazil:
Macroeconomic Challenges
Eduardo Bastian and Elena Soihet
A COMPARATIVE PERSPECTIVE OF THE MACROECONOMIC REGIMES ( ...continuation )

In this context, in the period following the collapse of the convertibility regime, depreciation in the exchange rate and fiscal surpluses in public accounts were almost unavoidable. As a result, the alternative economic policy selected in 2002 was sensible, although probably more pragmatic than strategic, at least in the beginning.

Starting in 2004, capital began to return to Argentina and the country began to register surpluses in capital accounts, so that having surpluses in public accounts was no longer necessary. However, seeing that depreciated exchange allowed Argentinean exports to rapidly recover — which contributed to putting the country back on a path to economic growth — the government chose to maintain stability and a competitive exchange rate, and even adopted capital controls starting in 2005. In fact, as Frenkel and Rapetti point out, the depreciated exchange rate gradually came to be part of the official economic strategy (Frenkel & Rapetti, 2008: 219). In this way, although depreciated exchange was an absolute necessity immediately following the crisis, it eventually came to be a strategic choice for the Argentinean government. At that time, the choice of economic growth was a possible option. This choice was reaffirmed after Minister of Economy Roberto Lavagna was replaced in 2005, because Lavagna at that time wanted to slow down the rate of economic activity because inflation was worsening.

Now that we have clarified why these two countries opted for different strategies, it is time to discuss the strengths and weaknesses of both regimes, which requires us to consider the results of economic performance. In this context, from the point of view of the results obtained by the two macroeconomic regimes, we must consider each regime’s goals. In Brazil there is a clearly declared tendency to combat inflation. In Argentina, on the other hand, the priority was economic growth by stimulating exports and recovering the national market

For Brazil, the results show that from the point of view of established goals, the macroeconomic regime was a success. Inflation — an objective of the monetary policy — was within the goal for the majority of the time period. However, there were moments of turbulence between 2001 and 2004, and the goals had to be adjusted between 2003 and 200414 (Céspedes et al., 2005: 21). Still, the adjustments in 2003-2004 were not enough to declare that the regime of goals failed in controlling the inflation rate.15 As can be seen in Figure 1, for the majority of the time period, inflation rates were within the maximum and minimum intervals of the goal, an area that corresponds to the shaded region.16

Figure 1. Inflation Rates in Brazil (1999-2010)


Source: Central Bank of Brazil

Public accounts also met established goals. Starting in 1999, the country began to systematically register primary surpluses over the gdp, and between 2001-2008, the value of this variable was always equal to or greater than 4%, except in 2006 when the primary surplus over gdp was 3.9%. There was also a fall in the nominal deficit/gdp of 5.8% in 1999 to reach 1.5% in 2008, while Liquid Debt over the Primary Surplus/gdp fell 44.5% in 1999 to reach 36% in 2008 (Modenesi & Werneck Vianna, 2010: 115).

Finally, the economy grew at an average of 3.4% from 1999-2010 and 4.4% from 2004-2010, and reached rates above 5% in four years (2004, 2007, 2008 and 2010). Even if these rates are not highly significant, they are at least reasonable, more so if we keep in mind that during the 1980s and 1990s, growth rates were very low.

14 In 2003, the interval for the goal was altered from 1.25-6.25% to 1.5-6.5%. In 2004, the interval was altered from 1.25-6.25% to 3-8%.

15 The main critique of the Brazilian inflation goals regime was that inflation had been controlled using one of the highest interest rates in the world. For details, see Modenesi & Werneck Vianna (2010).

16 The area was built by just considering the adjusted goals for 2003 and 2004.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 193, April-June 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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