A liberal democracy can survive for a while on institutional strength and widespread agreement. As long as most people are generally satisfied with how things are going (or have made peace with the status quo), it is easy to imagine that something like a social contract will keep things on track. Hamish MacAuley makes a persuasive case that many Canadians came of age politically between the collapse of the Berlin Wall and the 2008 financial crisis, when consensus was widespread and politics seemed optional, thus many chose to stay out. We abandoned democratic governing habits during prosperous times. Instead, we played politics. In response, McGill's Jacob T. Levy advocates for political action that rejects the status quo while also refusing to burn it all down or take our ball and go home. We should participate in politics, even if it is unsatisfying. When the foundations of our democratic structure or the rights of vulnerable people are jeopardized, it makes sense to delegate aut
Even tho these reforms were introduced and welcomed by the society, the issue that remained unsolved was the need for deeper structural fiscal reform, ya know? Unfortunately, Cardoso couldn't flex a congressional squad to make those much-needed changes like cutting down on the public sector payroll. Public sector jobs were like, hella important in Brazilian politics, and the public employees were all woke and stuff, so the Congress straight up refused to do anything about it. The number of public employees was hella high and real wages kept on flexin', which was like a major issue that got even more messed up after they decided to yeet the minimum wage in 1995.
A major cut in fed and state spending was hella necessary in all of these areas, but without Congress to make the moves, nothing could be changed (Roett, 2010:94).
OMG, cuz the gov wants to change the constitution so the prez can run again, the whole fiscal reform thing got wrecked. SMH. This opened a hella complicated process of providing mad inducements or "bribes" as some would say, to members of congress in exchange for their support of the amendment. It was like totally approved in 1997, but it cost a ton of money cuz they had to please all these special interests at the state and local level. They ended up funding all these pointless projects just for like political reasons (Roett, 2010:95). This was like totally the vibe for so many emerging-market economies, you know? They were all about flexing with those overhyped currencies to boost their industries and keep prices in check, ya know? (Roett, 2010:97) Nearly $8 billion of Brazil's foreign exchange reserves yeeted in October 1997 in the wake of the financial crisis. OMG, the interest rates just got hiked up from 19 to a whopping 43 percent! And like, the fiscal policy got all tightened up too. SMH. This mad tightening totally stopped the outflow of reserves and like, triggered a sick resumption of capital inflows. There was also a This totally boosted the flex of the exchange rate regime, all while keeping it real with an anchor for inflationary expectations. The exchange rate totally tanked by 13.9% in '95, 7.1% in '96, 7.3% in '97, and a whopping 8.3% in '98. Ouch! The real was also lit af cuz they decided to raise interest rates. OMG, these policies were lit AF!
The gov was like totally shook by some major external shocks that made it hella hard to govern, ya know?
The Mexican peso crisis in '94-'95 was one of them, fam. In Mexico, there was, like, a major dip in capital inflows, the peso got devalued to the max, and they lost a ton of foreign exchange reserves in the spring of 1994. It was wild, dude. Despite letting interest rates on short-term peso-debt go up, which helped chill out the peso for a sec, the Bank of Mexico let credit flow to the financial system and banks let it expand to the private sector (Roett, 2010:95). The causes of the crisis were lowkey popping off from a bunch of different factors, you feel me? One of them was the current account deficit, which like, grew to almost 8 percent of GDP in 1993 and 1994, as well as the fact that, like, a big part of this deficit
was funded by some quick cash flow, ya know? Also, like, the Mexican authorities were all about that fixed exchange rate, and the fact that they were totally cool with an over-valued exchange rate was a big deal for a government that was super committed to reducing inflation ASAP. OMG, like the gov was all chill with their money moves in '94, ya know? Reserves were like, majorly dropping (Griffith-Jones, 1997). Cuz of the currency deval, Mexico lowkey started what Latin America called the "tequila effect". The peso devaluation totally shook up the financial markets of emerging economies, like, out of nowhere. Investors totally lost their vibes for Latin American countries, and the stock markets in Chile, Argentina, and Brazil got majorly wrecked (Zarazaga, 1995). All these countries were so sus to catch the crisis vibes. Brazil had, like, a super overvalued currency, a weak financial position, and, like, a massive account deficit. But like, the Brazilian authorities were all like, "Nah, we gotta devalue the real, ASAP!" In the spring of 1995, the central bank was like, "Yo, let's do a crawling band thingy." It means that the real could flex and either go up or down against the U.S. dollar, but only within a set range.
Inflation was totally under control from 1995 to 1998, even though the government couldn't get their act together with fiscal reform (Roett, 2010:96).
In the aftermath of the Mexican peso crisis, Brazil totally scored with some major global financial vibes, like super chill interest rates for emerging markets and domestic macroeconomic conditions that foreign capital was totally into. And like, on top of that, interest rates were like totally going down. But like, the country's economic health was, like, super fragile cuz of the Asian financial crisis in '97 and the Russian collapse in '98. It was, like, a total wake-up call, you know? In Asia, the whole crisis started when the Thai government decided to flex on everyone by devaluing the baht in July 1997, letting the currency do its own thing. The decision to devalue quickly went viral in the region and then started trending in emerging markets worldwide. Brazil was hella vulnerable cuz their currency was way too overvalued and their current account deficit was like growing like crazy. OMG, cuz the gov totally flopped on tryna fix the civil service pension system, pension spending went from 35 to 43 percent of all public sector personnel spending from like 1992 to the late 90s. SMH. OMG, like the government not doing anything and not introducing any reforms is totally adding to Brazil's fiscal problems. SMH. The deficit in the social security system and the governments need to save failed banks were like major yikes that caused some serious fiscal problems.
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