The accumulated inflation in Brazil between 1961 and 2006 was 14.2 quadrillion percent — that’s 14,200,000,000,000 percent — the highest in the world through that 45-year period.
No government sets out to capture the hyper-inflation record. As I noted in The Storm Before the Calm in Brazil’s Economy, there were several attempts at stopping Brazil’s four decades of hyper-inflation — various governments rolled out new economic overhauls in 1967, 1986, and 1989. Each of these plans were based on some new Brazilian currency; all failed.
In 1990, Fernando Collor de Mello was elected president. In a desperate attempt to slay the inflation beast, Collor immediately confiscated all the money in every Brazilian savings account. Imagine waking up one morning to find that overnight the federal government had stolen your life savings.
The idea was to reduce prices by removing a vast sum of money from the financial system. At first, it looked as if it might work. Inflation dropped from 30,000 percent in 1990 to 400 percent in 1991 and the president gradually returned the frozen assets back to their owners. But the Collor plan quickly turned into a fiasco because the government failed to address the core causes of inflation — runaway deficit spending. In 1992 inflation once again topped 1,000 percent. Collor resigned at the end of that year, just ahead of a Senate vote for impeachment on corruption charges.
Just when it seemed to Brazilians that nothing would ever improve, economists in the Ministry of Finance, led by Finance Minister Fernando Henrique Cardoso resolved to attack hyper-inflation at its roots. Armed with straightforward economic theory backed by strong moral convictions, they developed the only economic plan in 40 years that succeeded.
Called the Plano Real (pronounced “hay-al”), the main component of the plan was a drastic cut in government spending. The strategy met stiff resistance from Brazil’s opposition parties led by today’s president Luiz Inácio Lula da Silva. Cardoso’s team persevered.
The Plano Real team emphasized the moral imperative for ending inflation in a 1994 document to then President Itamar Franco:
Chronic inflation is the largest obstacle that blocks the sustained economic growth that Brazil needs to balance the immense social debt that has accumulated upon its people. Elevated inflation erodes social solidarity, exacerbating individualism and dishonesty . . . The inflationary corrosion of the currency is invariably associated with increased impoverishment and with the deterioration of ethical standards in the society.
President Franco implemented Cardoso’s economic measures, and hyper-inflation in Brazil finally began to lose steam. Cardoso served two terms as president (1995 - 2003). His policies established the foundation for today’s economic stability and growth.
By remaining steadfast in the face of opposition, the leaders who implemented the Plano Real epitomized an important biblical principal for leadership: Do what’s right even if the rewards aren’t instantaneous.
Breaking free from the long addiction to inflationary government deficits was painful for Cardoso and the nation. The new policies imposed higher taxes to diminish national debt. The government cut back some social services. They elevated interest rates to suppress consumer spending, which also stifled private investment. Lacking capital, the nation created fewer jobs. None of this was politically popular and the gains weren’t immediately visible. But with monetary stability, the economy began to improve by slow, but very real, increments.
Some 15-years later, annual inflation in Brazil is running about five percent. The country is far from trouble-free, but economic stability has allowed Brazilians — including many poor citizens — to invest, plan, and grow their businesses.
As I consider what Cardoso accomplished, I’m reminded how difficult it can be for leaders who make decisions to benefit future generations — especially when those decisions are unpopular in the near term and the long range outcomes are uncertain.
LORD, who may dwell in your sanctuary? Who may live on your holy hill? He whose walk is blameless and who does what is righteous, who speaks the truth from his heart and has no slander on his tongue, who does his neighbor no wrong and casts no slur on his fellowman, who despises a vile man but honors those who fear the LORD, who keeps his oath even when it hurts, who lends his money without usury and does not accept a bribe against the innocent. He who does these things will never be shaken.
— Psalm 15, New International Version
