Collor Plan

The New Brazil Plan, better known as Collor Plan , was an economic plan launched in 1990 whose objective was to control inflation in Brazil.

Historical Context

Brazil was experiencing moments of political euphoria, as in 1989 the first direct and multi-party elections for president would be held, after the end of the military dictatorship.

On the other hand, inflation and economic stagnation were the main problems facing the country.

After 30 years without being able to elect a president, Brazilians felt they were regaining their political rights that had been suspended by the military dictatorship. A new Constitution had been promulgated and new labor and social rights had been included in the Magna Carta, which made the population confident.

During the campaign, historical leaders such as Lula da Silva, from the left, or Uliysses Guimarães, from the right, presented themselves as options. However, it was the young governor of Alagoas, Fernando Collor de Mello, who knew how to win over voters with his modern, athletic and anti-corrupt image.

The external scene was not the best. The 1980s were dominated by the implementation of neoliberalism in countries such as the United States and the United Kingdom.

In this way, it was the order of the day to privatize and reduce public spending. Neoliberalism in Brazil would be put into practice by the Collor government.

Origin

The Collor Plan was enacted through a provisional measure. This means that it was not taken to the National Congress for debate, nor voted on by congressmen.

Likewise, Collor de Mello and his team had never mentioned such a plan during the election campaign. The candidate promised to end inflation and improve the economy, but reinforced that it would be through the fight against corruption and the dismissal of bad public servants.

Thus, the Brazilian population was taken by surprise with the bank holiday of three days after the inauguration. But what would generate more astonishment was the communication made by President Collor de Mello himself on March 16, 1990, explaining the economic plan.

President Collor de Mello greets Zélia Cardoso de Mello on the day of her inauguration as Minister of Economy.

Collor appointed USP professor Zélia Cardoso de Mello as responsible for the economic portfolio. She had no political experience, but had been a former advisor to the Secretary of the Treasury during the 1980s. There she would meet Collor, then governor of Alagoas, and would work with him since the beginning of the election campaign.

The Ministry of Economy included those of Planning and Finance, in addition to secretariats such as the Federal Revenue. Zélia Cardoso was thus one of the most powerful ministers in the government.

Measures of the Collor Plan

Savings retained for those with deposits above 50,000 new cruzeiros (currently, 5000 to 8000 reais);
prices should return to March 12th values;
change of currency:from new cruzados to cruzeiros, no change of zeros;
beginning of the privatization process of state-owned companies;
administrative reform with the closure of ministries, municipalities and public companies;
dismissal of civil servants;
opening the Brazilian market abroad with the end of government subsidies;
Currency fluctuation under government control.

The most controversial measure of the Collor Plan was the retention of savings in banks, for account holders who had deposits above 50,000 cruzeiros. This was quickly called “confiscation” by the population.

The government retained deposits above this amount and intended to return them within 18 months with correction and interest of 6% per year. With this, it aimed to obtain liquidity to finance economic projects.

According to Minister Zélia Cardoso de Mello, 90% of Brazilian savings accounts were below this value and this retention would not harm the national economy. It also stated that the government would reimburse the deposits within the stipulated period.

This never happened and thousands of account holders had to go to court to recover their money.

Customers line up in front of BANERJ to withdraw money.

Collor Plan 2

The Collor 1 plan was a failure. Although it managed to reduce inflation in the first month, in the following weeks prices would continue to increase and wages to decrease.

Also by provisional measure published on February 1, 1991, the president instituted more economic norms that would be known as the Collor Plan 2.

Among them were:

Increase in public tariffs for the Post Office, energy and rail transport;
end of overnight and creation of the Financial Investment Fund (FAF);
Creating Interest Reference Rate (TR).

Consequences

The Collor 1 and 2 plans failed to save the Brazilian economy or contain inflation. Some economists claim that Brazil went bankrupt, as credits became more expensive and difficult to obtain. Other scholars point out that it was just a very deep recession.

This left several small businessmen and investors bankrupt, leading to suicide and death of several people by heart attack.

Then, unemployment rose substantially, the national industry was scrapped and some state-owned companies were sold below the market price.

In São Paulo alone, in the first half of 1990, 170,000 jobs ceased to exist. The GDP (Gross Domestic Product) decreased from US$ 453 billion in 1989 to US$ 433 billion in 1990. Likewise, there was the dismantling of the railways and cuts in infrastructure investment by the federal government.

Subsequently, Collor de Mello would find himself involved and accused of corruption by his own brother, Pedro Collor de Mello. The population took to the streets and demanded the impeachment for the president. However, before the process was initiated, Collor resigned from his position on December 29, 1992.

Globalization
Cross Plan
What is inflation?
Collor's Impeachment
Constitution of 1988