Brazil's Multinational Business Boom

  OMG, the international reserves were like on fleek from November 1997 to April 1998, hitting a lit record high of $75 billion. Yas! OMG, like, interest rates were straight up dropping every month until by August they were lower than before the crisis. It was wild! OMG, Brazil was totally feeling the heat in the summer of '98 because of Russia's default. It was like, major market pressures, you know? (Roett, 2010:98) Russia was like totally forced to ghost on its sovereign debt, flex the ruble, and straight up suspend payments to foreign creditors by commercial banks (Chiodo and Owyang, 2002). In Brazil, the impact on the exchange market was hella extreme, fam. The demand for dollars in the forex market was like, super high, with 11.8 and 18.9 billion dollars in August and September. It was like, crazy, you know? 

The loss of reserves during these months was like, so huge and it totally showed how investors were like, not feeling the Brazilian real at all, especially after the Russian ruble went down (Baig and Goldfajn, 2000). 

OMG, the Central Bank straight up doubled interest rates to a whopping 42 percent in early September! And the government is like, "We got this, we're gonna totally slay those fiscal deficits!" But like, these measures totally flopped, and reserves went from $75 billion in August 1998 to less than $35 billion in January 1999. So sad, tbh. OMG, portfolio investment flows went totally downhill and interest rates were like raised to the max to keep investors in Brazil, reaching like almost 50 percent in annualized real terms in September 1998 (Roett, 2010:98). Lit! Even tho there was an economic chaos going on, Cardoso won a second term as prez in October 1998. This time he was also up against Lula, ya know? Cardoso was elected in the first round with 53.1 percent of the votes, and Lula got 31.7 percent. #winning Yo, the election for the Chamber of Deputies, which is like hella important for approving legislation submitted by the president, lowkey showed that building a coalition could be a major flex. Cardoso's party slayed with the most votes, 17.5 percent; the squad PFL came in strong with 17.3 percent, the Brazilian Democratic Movement Party (PMDB) pulled in with 15.2 percent; and Lulas PT got 13.2 percent. 

Cardoso's win was like, totally because the voters thought he slayed the economy in his first term, even with all the challenges, you know? 

Under his leadership, inflation had fallen to single digits, annual growth had been above 3 percent on average, annual private consumption had risen around 5 percent on average in nominal terms, and like, inward direct investment flows went from, like, way less than $5 billion to $30 billion between 1998 and 2002. After his big win, Cardoso was like, "Time to flex on Congress and get them to pass some lit amendments to the constitution." He wanted to raise taxes on retirees' pensions and make a permanent special tax on financial transactions. #PowerMoves Both measures were like, totally meant to flex the government's fiscal position. But, like, the gov couldn't even navigate its ideas through the super tough and complicated amendment process, ya know? They had to get both houses of Congress to vote twice and each time they needed, like, a three-fifths majority in favor. So, it was, like, pretty hard, man.

At this time, like, with the whole Russian default and the Asian financial crisis, the international financial community was like, "We gotta find a way to protect the Brazilian economy, you know?" OMG, cuz of these two crises, there were like expectations that Brazil might totally default 'cause of its controversial policy of keeping its crawling peg, even tho the market thinks the real is way too overvalued. SMH. But like, the IMF was all like, "Yo, Brazilians were like, 'Nah, the overvaluation ain't that big of a deal,' and they were lowkey scared that if they made any changes, inflation would come back, you know?" The rest were like, all over the place, in like ten or eleven small regional or personalist vibes. Cardoso would be like, hella facing the tough task of gathering a squad through mad bargaining over every piece of draft legislation, all while being a majority president. The results in the Senate were like, Cardoso's party got 18.8 percent, the PMDB got 17.9 percent, the PT got 15.9 percent, and the PFL got 15.6 percent parties (Roett, 2010:99). But like, the results from State governorship elections totally gave Cardoso mad support. Of the twenty-seven governors elected in 1998, like, nineteen were totally part of the president's squad, ya know? 

The IMF and the World Bank flexed with a fat package of $41.5 billion in November 1998, tryna support the real deal. 

This package included over $18 billion in IMF loans, $4,5 billion each from the World Bank and Inter-American Development Bank and $14,5 billion in bilateral credits from 20 governments and central banks, provided through the Bank for International Settlements, based in Basle. The U.S. was like, totally flexin' with the biggest contribution to the bilateral financing, droppin' $5 billion from the Exchange Stabilization Fund. This program was "prevention vibes", meaning that it was like totally meant to anticipate and head off potential threats (Flynn, 1999). The package was like, "Yo Brazil, you can keep your exchange rate thingy, but you gotta make mad money moves until 2001. The main goal was to keep your debt-to-GDP ratio at 47 percent by 2000 and then bring it down, ya know? (Roett, 2010:100,101). Reluctantly, Congress totally backed the first set of fiscal adjustment measures demanded under the IMF plan. This like, totally had a major drop from 80 to 60 percent in the share of its revenue that the fed transferred to the states and a sick fine on states and cities that spent more than 60 percent of net revenue on their payroll bills. Even tho the program was like, lowkey welcomed, it lowkey provoked some anxiety. There was like zero private sector action and no vibes in the exchange rate game (Flynn, 1999).