Evolution of financial markets in post- stabilization Brazil: Trends and traits

Abstract

From the early 1980s up to the early 1990s, Brazil endured major macroeconomic imbalances stemming from uncontrolled inflationary spurs and severe external account constraints. Throughout its history, the Brazilian financial system was increasingly forced to structure itself around short-term lending strategies, as the country approached hyperinflation. The Real Plan inaugurated an era of price stability that revealed the vulnerabilities of the previously inflation-fueled financial structure. The ensuing banking reforms undertaken restored the system’s stability that, coupled with macroeconomic soundness and the restoration of economic growth, allowed for the fast-paced development of the capital markets and pension funds industry. Parallel to these macro processes, income distribution patterns shifted towards poverty reduction, entailing a striking increase in credit supply in the context of a commodities-export-financed consumption boom that reached peak levels around the year 2010. This chapter provides an overview of the evolution undergone by the financial system in Brazil, highlighting key features of capital markets and pension funds development, its capillarity in the economy and its role in sustained growth and development.