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.

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

  1. http://www.flickr.com/photos/11118948@N00/173169697/ The Fake Currency That Saved a Nation
  2. Marcelo Somers Media Product Manager Sabre Holdings @marcelosomers
  3. why am i here?
  4. that’s actually my cousin...
  5. Fake Money Saved Brazil...
  6. in the late 80s, Brazil had a bit of a problem
  7. 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
  8. grocery shopping wasn’t much fun... • A freezer became your best friend • Prices changed throughout the day • Products would disappear
  9. there were a few perks...
  10. 0 750 1500 2250 3000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 ConsumerPriceIndex http://www.indexmundi.com/brazil/inflation_rate_(consumer_prices).html
  11. 0 750 1500 2250 3000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 ConsumerPriceIndex http://www.indexmundi.com/brazil/inflation_rate_(consumer_prices).html huh?
  12. 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
  13. 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 Failed
  14. Attempt #2 - 1987 the bresser plan
  15. Attempt #2 - 1987 the bresser plan Failed
  16. Attempt #3 - 1989 the summer plan
  17. Attempt #3 - 1989 the summer plan Failed
  18. Attempt #4 - 1990 the collor de mello plan
  19. 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
  20. 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 Failed
  21. lesson learned... you can’t centrally plan an economy
  22. Hurray Free Markets! http://3.bp.blogspot.com/_x1Xe0kyzOQs/TEZsxx1XYoI/AAAAAAAAAaQ/6qFENwk98FA/s1600/simex3a.jpg
  23. what can a government control?
  24. what can a government control? fiscal policy monetary policy
  25. 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.
  26. Plano Real 4 drinking buddies who created a fake currency and saved an economy.
  27. 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
  28. 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
  29. Unidade Real de Valor (Real Value Unit) the fake currency
  30. July 1, 1994
  31. modern-day Brazil
  32. Fernando Henrique Cardoso President, 1995 - 2003 Privatization of enterprises http://www.scielo.br/scielo.php?pid=S0034-71402005000200001&script=sci_arttext ‘‘ 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. ”
  33. embraer modern globality
  34. http://en.wikipedia.org/wiki/File:Lula_-_foto_oficial05012007_edit.jpg Luiz Inácio Lula da Silva President, 2003 - 2010
  35. Bolsa Familía (family allowance)
  36. provides a monthly allowance to families whose children are vaccinated and attend school Bolsa Familía
  37. For families with per-capita income below R$140/month: R$22 ($12) per child attending school (max 3) + R$68 for families with per-capita income below R$68/ month Bolsa Familía
  38. Poverty 27.7% decline during Lula’s first term
  39. Bolsa Familía does it really work? my opinion...
  40. 2010 Elections vs Dilma Rousseff Worker’s Party (PT) José Serra Brazilian Social Democracy The Results
  41. Final thoughts on Brazil... • Censorship • Communism/Marxism • De-Privatizing Companies
  42. Final thoughts on Brazil... • Amazing investment growth • Taxation Meter (increase in taxes 3 months ahead)
  43. Can Brazil continue its amazing success?
  44. One more thing...
  45. the forever recession
  46. questions?
  47. thanks!@marcelosomers blog.marcelosomers.com slideshare.net/msomers

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