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The Fake Currency that Saved a Nation

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Presented at UT Dallas for the Management Honors Program International Business class on 11/2/10....

Presented at UT Dallas for the Management Honors Program International Business class on 11/2/10.

This is a brief overview of the economic history of Brazil, including the amazing story of conquering hyperinflation and then the incredible rebound of the economy over the past 15 years.

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  • Hi Carlos - you are correct, Mexico was actually the first company to start a cash transfer program like this. Obviously, from a social view it is very helpful, and over the past decade, income equality has actually gotten better in Mexico and Brazil.

    My main concern is that this has to be paid for by someone, it's not free. In Brazil during Lula's term as president, only 2% of GDP was invested in infrastructure while China and Singapore were investing north of 20%. Brazil suffers from a massive infrastructure problem.

    Higher taxes aren't a solution to this either. Yes, these are wealth redistribution programs, but high taxation has never been associated with positive economic growth, as a matter of fact, it's the other way around. Companies usually run from countries/states with high taxes, which in the long run will hurt job creation.

    In the end, you can't argue with the economic growth both of these countries are experiencing. Mexico, not as much, but both are definitely an emerging market.
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  • Would be nice to have your thoughts on slides 41-46... in Mexico we have the Oportunidades Program that sounds exactly like the Bolsa Familia and it is helping but not as much as you indicate is working in Brazil...
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The Fake Currency that Saved a Nation The Fake Currency that Saved a Nation Presentation Transcript

  • The Fake Currency That Saved a Nation http://www.flickr.com/photos/11118948@N00/173169697/
  • Marcelo Somers Media Product Manager Sabre Holdings @marcelosomers
  • why am i here?
  • that’s actually my cousin...
  • Fake Money Saved Brazil...
  • in the late 80s, Brazil had a bit of a problem
  • the inflation rate hit 80%... per month! that means if eggs cost $1, they’ll cost $2 a month later. a year later, they’ll cost $1,000
  • h fu n... n’t m uc ngw as y sho ppi gro cer • A freezer became your best friend • Prices changed throughout the day • Products would disappear
  • there were a few perks...
  • 3000 2250 Consumer Price Index 1500 750 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 http://www.indexmundi.com/brazil/inflation_rate_(consumer_prices).html
  • 3000 2250 h uh? Consumer Price Index 1500 750 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 http://www.indexmundi.com/brazil/inflation_rate_(consumer_prices).html
  • Attempt #1 - 1986 the cruzado plan - General price freeze - Wage readjustment and freeze - Readjustment and freeze on rents and mortgage payments - A ban on indexation - A freeze on the exchange rate
  • Attempt #1 - 1986 the cruzado plan - General price freeze Fa i - Wage readjustment and freeze le d - Readjustment and freeze on rents and mortgage payments - A ban on indexation - A freeze on the exchange rate
  • Attempt #2 - 1987 the bresser plan
  • Fa i le Attempt #2 - 1987 the bresser plan d
  • Attempt #3 - 1989 the summer plan
  • Fa i le the summer plan d Attempt #3 - 1989
  • Attempt #4 - 1990 the collor de mello plan
  • Attempt #4 - 1990 the collor de mello plan this one actually sounded pretty good... - Removed restrictions on free enterprise - Increased competition - Privatized public enterprises - Boosted productivity
  • Attempt #4 - 1990 the collor de mello plan Fa i le d this one actually sounded pretty good... - Removed restrictions on free enterprise - Increased competition - Privatized public enterprises - Boosted productivity
  • lesson learned... you can’t centrally plan an economy
  • Ma rke ts! urr ay F ree H http://3.bp.blogspot.com/_x1Xe0kyzOQs/TEZsxx1XYoI/AAAAAAAAAaQ/6qFENwk98FA/s1600/simex3a.jpg
  • what can a government control?
  • what can a fiscal policy monetary policy government control?
  • Quick Economics 101 Reminder... Monetary Policy: the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest to attain a set of objectives oriented towards the growth and stability of the economy. - Open Market Operations - Discount Rate - Reserve Requirements Fiscal Policy: the use of government expenditure and revenue collection to influence the economy.
  • Plano Real 4 drinking buddies who created a fake currency and saved an economy.
  • hardly your average drinking buddies... Gustavo Franco - PhD Economics, Harvard Pérsia Arida - MIT Economics Edmar Bacha - First Brazilian to receive a PhD in Economics @ Harvard Pedro Malan - PhD Berkley
  • ‘‘ You have to slow down the creation of money. But, just as important, you have to stabilize people's faith in money itself.   People have to be tricked into thinking money will hold its value.” http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake-money-saved-brazil
  • Unidade Real de Valor (Real Value Unit) rr en cy fa ke cu t he
  • July 1, 1994
  • modern-day Brazil
  • Fernando Henrique Cardoso President, 1995 - 2003 Privatization of enterprises ‘‘ The results indicate that these companies became more efficient after privatization. In particular there was an increase in profitability and operational efficiency. Apparently, the loss of financial support from the state has a major impact on the financial structure of companies, we observed an increase of current liquidity and a reduction in long-term debt. ” http://www.scielo.br/scielo.php?pid=S0034-71402005000200001&script=sci_arttext
  • embraer modern globality
  • Luiz Inácio Lula da Silva President, 2003 - 2010 http://en.wikipedia.org/wiki/File:Lula_-_foto_oficial05012007_edit.jpg
  • Bolsa Familía (family allowance)
  • Bolsa Familía provides a monthly allowance to families whose children are vaccinated and attend school
  • Bolsa income below R$140/month: For families with per-capita Familía R$22 ($12) per child attending school (max 3) + R$68 for families with per-capita income below R$68/ month
  • Poverty 27.7% decline during Lula’s first term
  • Bolsa Familía n... does it really work? o p inio my
  • 2010 Elections vs Dilma Rousseff José Serra Worker’s Party (PT) Brazilian Social Democracy The Results
  • Final thoughts on Brazil... • Censorship • Communism/Marxism • De-Privatizing Companies
  • Final thoughts on Brazil... • Amazing investment growth • Taxation Meter (increase in taxes 3 months ahead)
  • Can Brazil continue its amazing success?
  • One more thing...
  • the forever recession
  • questions?
  • thanks! @marcelosomers blog.marcelosomers.com slideshare.net/msomers