ABSTRACT
Introduction Brazil has a tightly coupled fiscal regime with balanced safeguards in the political stream. The federal system of Brazil is more centralized than that of Argentina presented in Chapter 11 (Blöchliger and Kantorowicz 2015: 18). After enduring economically and financially turbulent years in the 1990s, Brazil’s fiscal and economic situation improved considerably on all government levels until 2012, when the economic and financial situation declined once again. Indeed, many sources talk of a success story until 2012 (Canuto, Cavallari and Reis 2013; de Mello 2007; de Mello and Moccero 2006; Melo, Perera and Souza 2010; OECD 2009, 2011): A radical shift in monetary and fiscal policy created the fertile soil for the unraveling of a macroeconomic environment with sinking inflation rates, steady, real GDP growth, stable exports, diversification of economic activities and a slow but steady sinking of income inequality. Concerning consolidation policies, two elements determined a radical shift: the fiscal rule in 2000 determined that “debt renegotiation, primary deficit and bail out by the central government, which used to be the rule, are no longer possible,” which was particularly due to the elimination of the possibility to “issue bonds and indirectly issue money through their commercial banks, which were privatized” (Ferreira and Bonomo 2006: 3). In many other aspects it is very similar to the case of Argentina, however, the main difference is that: the subnational governments (SNG) in Argentina had “a lot of power to spend (and could even issue their own money),” but in Brazil the fiscal responsibility law (FRL) set strict bounds (Ferreira and Bonomo 2006: 4). Further reasons were that the exchange rate devaluation was much harsher in Argentina, its debt was almost exclusively in dollars, the debt share in GDP was about three times higher in Argentina, and the fixed exchange rate was more flexible in Brazil (Ferreira and Bonomo 2006: 4).
