Plano Collor
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2008-07-16T22:14:40Z
Imprensista
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[[Image:Bancocentralbrasil.JPG|thumb|right|The [[Brazilian Central Bank]], responsible for the implementation of [[monetary policy]] in Brazil.]]
The '''Collor Plan''' ([[Portuguese language|Portuguese]]: '''Plano Collor'''), is the name given to a collection of economic reforms and inflation-stabilization plans carried out during the [[President of Brazil|presidency]] of [[Fernando Collor de Mello]] of [[Brazil]], between [[1990]] and [[1992]]. The plan was officially called ''New Brazil Plan'' (Portuguese:''Plano Brasil Novo''), but it became closely associated with Collor himself, with "Plano Collor" becoming its [[de facto]] name.
The Collor plan combined fiscal and trade liberalization with radical inflation stabilization measures.<ref name="locecon">Welch, John H. Birch, Melissa. Smith, Russell.[http://lcweb2.loc.gov/hlas/ss53econ-birch.html ECONOMICS: BRAZIL]. [[Library of Congress]]. December 30, 2004. Retrieved on September 8, 2007.</ref> The main inflation stabilization was coupled with an industrial and foreign trade reform program, the ''Industrial and Foreign Trade Policy'' (English: ''Política Industrial e de Comércio Exterior''), better known as '''PICE''', and a privatization program dubbed the "National Privatization Program" (Portuguese: ''Programa Nacional de Desestatização''), better known as the '''PND'''.
The plan's economic theory was previously laid out by economists [[Antônio Kandir]], [[Álvaro Zini]] and [[Fábio Giambiagi]]<ref name="locecon" />. The actual plan to be implemented was written by Antônio Kandir and economists Ibrahim Eris, Venilton Tadini, Luís Otávio da Motta Veiga, Eduardo Teixeira and João Maia.<ref name="genesis">Carvalho, Calos Eduardo. [http://www.scielo.br/scielo.php?script=sci_arttext&pid=S0103-63512006000100003&lng=&nrm=iso&tlng=#_ednref20 As origens e a gênese do Plano Collor]. Nova Economia. Vol.16 No.1. [[Belo Horizonte]]. January-April 2006. Retrieved on September 8, 2007.</ref>
The plan was announced on March 16, 1990, one day after Collor's inauguration.<ref name="genesis" /> Its intended policies included:
<ref name="IPEA">Villela, Anibal. [http://www.ipea.gov.br/pub/livros/anibal/Parte%202/12_The%20Collor%20Plan.pdf The Collor Plan and the Industrial and Foreign Trade Policy]. [[Institute of Applied Economic Research]]. 1997. Retrieved September 8, 2007.</ref>
* Replacement of the existing currency, the ''Cruzado Novo'' by the ''Cruzeiro'' at a parity exchange rate (Cr$ 1.00 = NCz$ 1.00)
* The freezing of 80% of private assets for 18 months (receiving the prevailing rate of inflation plus 6% in interest while frozen)
* An extremely high tax on all financial transaction
* Indexation of taxes
* Elimination of most fiscal incentives
* Increase in the prices charges by public utilities
* The adoption of a [[floating exchange rate]]
* Gradual economic opening to foreign competition
* Temporary freeze of wages and prices
* The extinction of several government agencies, with plans for a reduction of over 300 thousand government employees
* Stimulus of privatization and the beginning of a deregulation of the economy
==Inflation stabilization plans==
Three separate plans to stabilize inflation were carried out during Collor's two years in power. The first two, Collor Plans I and II, were headed by the finance minister, [[Zélia Cardoso de Mello]]. In May 1991, Zélia was replaced by [[Marcílio Marques Moreira]], who carried out a homonymous plan, the '''Marcílio Plan''' (Portuguese: '''Plano Marcílio''').<ref name="bressermarcilio"> Bresser-Pereira, Luiz Carlos. [http://www.bresserpereira.org.br/papers/1991/88.DecimoPrimeiroPlanoMarcilio.pdf O Décimo-primeiro Plano de Estabilização]. ''Combate à Inflação e Reforma Fiscal''. [[Rio de
Janeiro]]. pp.132-150. 1992. Retrieved September 8, 2007.</ref>
===Collor Plan I===
<!-- Image with inadequate rationale removed: [[Image:500kcruzeiros.jpg|thumb|right|The [[Brazilian cruzeiro|Cruzeiro]] replaced the [[Brazilian cruzado|Cruzado]] as the national currency on [[March 16]], [[1990]].]] -->
Brazil had suffered through several years of hyperinflation: in 1989, the year before Collor took office, average monthly inflation was 28.94%.<ref name="IBGE">[http://www.ibge.gov.br/home/estatistica/indicadores/precos/inpc_ipca/defaulttab1.shtm Resultados Mensais por Grupos - 1979 a 1999 - Brasil e Áreas]. [[IBGE]]. Retrieved September 8, 2007.</ref> The Collor Plan sought to stabilize inflation by "freezing" government liability (such as internal debt)<ref name="locecon" /> and restricting money flow in order to halt inertial inflation.
The freeze caused a a strong reduction in trade and output of industry. With the reduction in the money supply from 30% to 9% of [[GDP]], the rate of inflation dropped from 81% in March to 9% in June.<ref name="genesis" /> The government faced two choices: they could either hold the freeze, and risk a recession brought about by the reduction of economic activity,<ref name="IPEA" /> or re-monetize the economy by "unfreezing" money flow and risk the return of inflation.<ref name="genesis" />
Rapid, uncontrolled re-monetization of the economy had been named as the cause the failure of the previous economic stabilization plans in controlling inflation.<ref name="genesis" /> The Collor government would have to "throttle" the re-monetization in order to keep inflation down.<ref name="carvalho">Carvalho, Carlos Eduardo. [http://www.anpec.org.br/revista/vol4/v4n2p283_331.pdf O fracasso do Plano Collor: erros de execução ou de concepção?]. ECONOMIA. Niterói. Vol.4, No.2, p.283-331, July-December 2003. Retrieved September 8, 2007.</ref> To do so, it could utilize a wide combination of economic tools to affect the speed of re-monetization, such as taxes, exchange rates, money flow, credit and interest rates.<ref name="genesis" />
For the next few months after the plan was implemented inflation continued on an upward trend. By January 1991, nine months after the plan began, it had climbed back to 20% a month.<ref name="IBGE" />
The failure of the Plano Color I in controlling inflation is credited by both [[Keynesian]] and [[monetarism|monetarist]] economists to the Collor government's failure to control the re-monetization of the economy.<ref name="bresser">Bresser-Pereira, Luiz Carlos. [http://www.reformadagestaopublica.org.br/papers/1990/94PlanoCollor&VoltaInflacao.pdf O Plano Collor e a Volta da Inflação]. ''Indicadores Econômicos FEE'', 18 (2): 55-61. [[Porto
Alegre]]. August 1990. Retrieved September 8, 2007.</ref> The government had opened several "loopholes" which contributed to the increase of the money flow: Taxes and other government bills issued prior to the freeze could be paid with the ''old'' Cruzado, creating a form of "liquidity loophole" which was fully exploited by the private sector.<ref name="IPEA" /><ref name="bresser" /> A number of individual exceptions to individual sectors of the economy were opened by the government, such as retirees' savings and "special financing" for the government payroll.<ref name="IPEA" /><ref name="carvalho" /> As the government issued more and more exceptions granting liquidity, these were later dubbed ''little faucets'' (Portuguese: ''torneirinhas''). <ref name="carvalho" />
Ultimately, the government was unable to reduce spending, reducing its ability to use many of the aforementioned tools.<ref name="locecon" /> Reasons ranged from an increased share of the federal tax revenue to be shared with the individual states to a "job stability" clause for government employees in the [[1988 Brazilian Constitution]] which prevented the size reduction as announced at the start of the plan.<ref name="IPEA" /> This vindicated economists such as [[Bresser Pereira]] and [[Mário Henrique Simonsen]], both former finance ministers, who had predicted at the start of the plan that the government's fiscal situation would make it impossible for the plan to work.<ref name="locecon" /><ref name="bressernakano">Bresser-Pereira, Luiz Carlos. Nakano, Yoshiaki. [http://www.bresserpereira.org.br/ver_file.asp?id=237 Hiperinflação e Estabilização no Brasil: o Primeiro Plano Collor]. ''Revista de Economia Política''. 11 (4). October-December 1991. Retrieved September 8, 2007.</ref>
===Collor Plan II===
The second Collor Plan took place in January 1991.<ref name="bressermarcilio" /> It included a new freezing of prices and the replacement of the [[overnight rate]] with new financial instruments which included in its yield calculation the anticipated rates of both private and federal papers.<ref name="IPEA" />
The plan managed to produce only a short-term drop in inflation, and it began to climb again in May 1991.<ref name="IBGE" />
===Marcílio Plan===
[[Image:Marcilio Marques Moreira.jpg|thumb|[[Marcílio Marques Moreira]], who replaced [[Zélia Cardoso de Mello]] as finance minister on [[May 10]], [[1991]],]]
On May 10, 1991, Zélia was replaced as finance minister by Marcílio Marques Moreira, a [[Georgetown University|Georgetown]]-educated economist who was at the time of his nomination the Brazilian ambassador to the [[United States]].<ref> [http://www.fazenda.gov.br/portugues/institucional/ministros/rep082.asp Ministros de Estado da Fazenda: Marcílio Marques Moreira]. ''Brazilian Finance Ministry''. Retrieved September 8, 2007.</ref>
Marcílio's plan was considered more gradual than its predecessors, utilizing a combination of high interest rates and a restrictive fiscal policy.<ref name="bressermarcilio" /> At the same time, prices were liberalized and, working along with [[Pedro Malan]], a US$2 billion loan from the [[International Monetary Fund]] secured to shore up internal currency reserves.<ref name="IPEA" />
Inflation rates during the Marcílio Plan remained at hyperinflationary levels.<ref name="IBGE" /> Marcílio left the finance ministry to his successor, [[Gustavo Krause]], on October 2, 1992.<ref>[http://www.fazenda.gov.br/portugues/institucional/ministros/rep083.asp Ministros de Estado da Fazenda: Gustavo Krause]. ''Brazilian Finance Ministry''. Retrieved September 8, 2007.</ref> President Fernando Collor de Mello had been impeached by congress four days earlier, on September 28, 1992, over charges of corruption in an influence-peddling scheme, marking the end of his government's attempts at ending hyperinflation.<ref>Lattman-Weltman, Fernando. [http://www.cpdoc.fgv.br/nav_fatos_imagens/htm/fatos/Impeachment.asp September 29, 1992: Collor's Impeachment]{{pt icon}} Fundação Getúlio Vargas. Retrieved [[August 17]], [[2007]].</ref>
Between the end of the Marcílio Plan and the beginning of the next "named" plan, the [[Plano Real]], inflation continued to grow, reaching 48% in June of 1994.<ref name="IBGE" />
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==Industrial and Foreign Trade Policy (PICE)==
Running along in parallel with the Collor Plan was the PICE, a program which aimed to both raise real wages and promote economic openness and trade liberalization.<ref name="IPEA" />
Selected policies included the gradual reduction of tariffs (with the selective protection of certain key industries), an export financing mechanism through the creation of a Foreign Trade Bank (similar to the American [[Export-Import Bank of the United States|Ex-Im Bank]], reduction in customs duties, implementation of anti-[[Dumping (pricing policy)|dumping]] mechanisms and the use of government-generated demand for high-tech sectors.<ref name="IPEA" />
On paper, the PICE had seemingly contradictory goals: to stimulate the entry of foreign companies while increasing local innovation.<ref name="IPEA" />
Later studies by the [[Institute of Applied Economic Research]] (IPEA), an independent government [[think tank]], argued that the policy seemed to have produced that very contradictory effect: local production saw improvements in quality and productivity in face of foreign competition, but it simultaneously curbed domestic innovation due to unrestricted competition from imported technology.<ref name="IPEA" />
==National Privatization Program (PND)==
While previous privatizations had been conducted by the government in the 1980s, at time of Collor's inauguration, no large-scale privatization program had been attempted.<ref name="IPEA" /> Sixty-eight different companies were added to the PND and slated for privatization. Unlike traditional privatization programs, which sought to finance a government's deficit, the PND had a stated goal of providing the government with the means with which they could purchase back the public debt.<ref name="IPEA" /> Government bonds were used in large quantities as currency to pay for privatized companies.<ref name="BNDES">[http://www.bndes.gov.br/privatizacao/resultados/historico/history.asp BNDES: Histórico do PND]. [[BNDES]]. December 31, 2002. Retrieved [[September 9]], [[2007]].</ref>
Altogether, some 18 companies worth US$4 billion were privatized between 1990 and 1992, mostly in the steel, fertilizer and [[petrochemical]] sectors.<ref name="BNDES" /> The PND also ended several government monopolies whose possible negative social impact was expected to be countered by the increased competition. This increased competition, resulting from the aforementioned PICE policies, was thought to reduce the chance of the emergence of [[oligopoly|oligopolies]].<ref name="IPEA" />
==References==
{{reflist}}
==See also==
* [[Timeline of Brazilian economic stabilization plans]]
==External links==
* [http://www.collor.com/collorplan.asp Collor´s Official web site, The ''Collor Plan'']
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[[pt:Plano Collor]]
[[Category:Economy of Brazil]]