The Difficult Balance between Macro and Micro: Inflation, Exchange Rates, and Industrial Development in Brazil

Since 1930 Brazilian economic policy has struggled to balance the tension between promoting industry and maintaining macroeconomic stability. On one side, heterodox views have supported state efforts to deepen industrialization and attached less priority to inflation. On the other side, more orthodox views have emphasized the need to keep inflation in check, even at the expense of industrial development. Economic policy making tended to clearly favor one priority over the other, with industry privileged for most of the modern period and stability emerging as the priority since 1994. That tension has persisted into the contemporary period where first the Real Plan and then ‘inflation targeting’ have kept inflation at check, but at the cost of an overvalued currency, high costs of capital, and worrisome signs of ‘premature de-industrialization.’ Brazil’s persistent challenges of promoting industrial development with macroeconomic stability show the need for further theorizing and new policy solutions.