ABSTRACT
A more active use of orthodox expenditure-reducing and expenditure-switching policies could have reduced the increase in foreign indebtedness by slowing down the rate of growth of consumption and by additionally stimulating exports and import substitution. As far as expenditure-switching policies are concerned, policy makers in Brazil chose to rely largely on commercial policies rather than on an active exchange-rate policy. Having chosen commercial policies as their main instrument of expenditure-switching policies, policy makers in Brazil were somewhat slow to take the necessary measures. Fiscal policy turned very expansionary in 1975 and 1976 as both government consumption and, especially, capital expenditures by the government, as well as by state-owned enterprises soared as a proportion of gross domestic product (GDP). The increase in capital expenditures as a proportion of GDP by the public sector in 1981/82 reflected the need to complete a large number of investment projects initiated in the 1970s.
