The Economy - Stagnation, 1962-67

The Economy - Stagnation, 1962-67

As a result of the problems associated with import-substitution industrialization and the reforms introduced by the military regime after March 1964, the Brazilian economy lost much of its dynamism between 1962 and 1967. The average rate of growth of GDP in the period declined to 4.0 percent and that of industry to 3.9 percent. In part, stagnation resulted from distortions caused by the strategy. Moreover, political troubles negatively affected expectations and precluded the formation of a coalition to back the introduction of tough measures to control inflation and the balance of payments crisis. Political troubles also hindered the removal of obstacles to growth.

The 1964 coup dealt with the political obstacles by forcefully restraining opposition to the military agenda of change. With the objective of transforming Brazil into a modern capitalist economy and a military power, the regime implemented a series of reforms aimed at reducing inflation, at removing some of the distortions of import-substitution industrialization, and at modernizing capital markets. The regime gradually introduced incentives to direct investment, domestic and foreign, and tackled balance of payments problems by reforming and simplifying the foreign-exchange system. In addition, the regime introduced a mechanism of periodic devaluations of the cruzeiro, taking into account inflation. Finally, the military government adopted measures to attract foreign capital and to promote exports. It took steps to expand public investment to improve the country's infrastructure and later to develop state-owned basic industries.

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