Brazil’s financial history has been filled with fluctuation and panics as well as currency changes and uncertainty. Very few Americans have had the chance to witness the political and economic changes first hand, and one of the only journalists who has been present in the country since the beginning of these changes is Mac Margolis. He began in Brazil in the 1980’s doing freelance work for Newsweek and other companies. The big question he asked himself, not knowing the language, culture or anything else was “can I survive?”
“Brazil’s national gadget was the price gun,” Margolis said. The inflation was rising at insane rates, nearly 2500% annually.
“What is fairly unique is the chronic and prolonged period of hyperinflation,” said Margolis. “There have been episodes of hideous hyperinflation in the world, but I don’t know that there have been many countries that have had triple digit inflation or quadruple digit inflation for a decade or decade in a half.”
The country developed a strategy, besides constantly changing currency, called indexation. The basic principle behind the program was to raise the wages exponentially with the inflation rates. It proved to be ineffective.
In 1994, they switched the currency to the Real, which remains in place today. The biggest change from the previous currencies, said Margolis, involved three small changes that from the past the proved to curb the inflation: getting the government to curb their spending, backing the Real with something substantial (the dollar, in which case they initially held it at a 1:1 ratio), and finally eliminating indexation from the Brazilian economy. Initially it proved to be effective, and the Brazilian Real is trading at a 2:1 ratio with the dollar, but recently inflation has risen again.
As their political and economic situations remain stable, Brazil’s federal government is starting to examine their role in the world stage, on several different platforms. The former president, Lula, spent much of his time developing Brazil’s reputation with foreign entities, sometimes to the disliking of the United States, but doing so nonetheless.
Now, Brazil is in the position to explode economically with the discovery of the Pre-Salt layer and the hosting of the worlds two biggest sporting events, the Olympics and the World Cup. But, to prove success, Margolis believes they must first figure out what Brazil wants to be seen as internationally, before they can be considered a real player at the world’s table.
“Brazil wants to be known as a world power, most naturally it’s a regional power,” Margolis said. “[Brazil] doesn’t know what kind of power it wants to be.”