External crisis and public spending reform

Resumo

Brazil was one of the countries that benefited most from the global financial bonanza in 2002-2008. Globally, this favorable period was brought about by excessive monetary expansion in developed countries and disproportionate expansion of the real estate market in the US and other countries, combined with excessive leverage (the ratio between borrowed funds and equity), particularly in developed countries with weak financial supervision. In the wake of this bonanza, the Brazilian economy was the recipient of an unprecedented volume of foreign resources, and the global boom led to a rapid rise in the price of our export commodities. In this context, even as the Central Bank purchased an enormous volume of dollars (foreign reserves), it was possible to significantly increase our imports, particularly capital goods, while the exchange rate and interest  rates fell markedly. As a consequence, domestic investment expanded rapidly, leading to considerably higher growth of the Brazilian economy.