The Brazilian federation: Facts, challenges, and perspectives

Abstract

INTRODUCTION Following decades of protectionism and a powerful interventionist state, the Brazilian economy suddenly exposed itself to external competition and went through a rapid process of privatization. The institutional reforms implemented in the 1990s helped stabilize the economy and create a friendlier environment for attracting investments and fostering growth. In spite of the still-looming uncertainties regarding the prospects for reconciling sustainable development and macroeconomic stability, the results achieved in the past decade are on balance positive. The federal regime affected and was affected by the process of moving from a closed, state-controlled economy to an open, privately run market. Indeed, the greater the degree of subnational governments' interests in proposed reforms, the more difficult it became to implement the reforms. In some cases, subnational governments had to be lured into accepting changes that reduced state and local autonomy. The power of state and local governments in the National Parliament created the necessity for bargaining over compensation for reduced autonomy or financial losses even in cases where subnational governments did not have direct policy oversight. Of the reforms that topped the agenda for modernizing the Brazilian economy during the 1990s, three deserve special attention: privatization, public employment, and social security and taxation. Given the central role of healthy public finances in the strategy for macroeconomic stability, these reforms were the object of intense debate and much disagreement. Of these, privatization has been the only successful reform so far. © Cambridge University Press 2006 and Cambridge University Press, 2009.