Brazilian Dependent Capitalism under the Hegemony of Financialized Capital

A Brand-New Dependency

Changes in the Brazilian economic regulatory framework (norms, laws, and resolutions) with the objective of keeping the currency, public spending, and the exchange rate stable through the liberalization of the national economy and inflation control have resulted in the contemporary paradigm of Brazilian dependency, which is intrinsically linked to the expansion of global financialization characterized here as the phase of capitalism beginning in the 1970s. As a result, it is necessary to speak in terms of a brand-new dependency. According to Fernandes (1975), Brazilian dependent capitalism is characterized by the absence of a national project, especially when seen from the perspective of the ruling classes, which allied themselves with foreign hegemonic capital to perpetuate, on the one hand, the subordinate condition of the country in its international relations and, on the other hand, the exploitation of the labor of the remaining majority of the population that made possible the division of surplus value between the national and the global bourgeoisie.

The structure of Brazilian dependent capitalism followed the logic of a “double articulation,” combining the accumulation of capital internally through the reproduction of domestic underdevelopment with submission to foreign imperialist demand (Fernandes, 1975). Thus, the local ruling class was allied with foreign capitalists and defending interests foreign to Brazilian economic emancipation (Fernandes, 2006). As a result, development policies between the 1930s and 1980s, with the expansion of national industrialization supported by the national state, the local bourgeoisie, and hegemonic international capital (Prado Jr., 2008), did not break with the double-articulation socioeconomic model, but they did achieve progress in the concentration of income, especially during the Economic Miracle period (1969–1973).

The concept of a brand-new dependency (Fiori, 1995; Saes, 2007) represents the collapse of development policy aligned with a pattern of alliances with global capital. The disintegration of associative industrialization was linked with the rise of neoliberal doctrines of global value chains and their integration through globalization, which resulted in the loss of opportunities for Brazilian industry in the face of international competition (Saes, 2007: 159):

But what exactly does this brand-new dependency consist of? First World financial capital and industrial monopolistic capital, as well as governments, including the United States, and the entities that represent them, such as the International Monetary Fund (IMF), the World Trade Organization (WTO), and the World Bank, no longer pursue new investments in the productive apparatus to advance the associated industrialization of peripheral countries but rather seek to achieve easy gains, taking over all the existing economic sectors that can provide real and immediate profits. More specifically: foreign capital and its representatives are pressuring the Latin American states to implement a liberal economic policy.

Fiori (1995: 220) adds geopolitical aspects in his description of this brand-new dependency, in which transformations occurred with the advent of globalization that required the reformulation and updating of the categories of contemporary dependency relationships:

The concept of globalization had not yet been fully developed, and it is not impossible that it will go into oblivion before it has been possible to clarify its true theoretical meaning. Even so, and despite this imprecision, there is no doubt that the concept seeks to account for a new capitalist formatting that has been generated in recent decades by the incessant process of accumulation and internationalization of capital.

At this juncture, when transnationals migrated to Eastern Europe, Mexico, and East and Southeast Asia, multilateral organizations and the United States pressured indebted underdeveloped countries to adopt a liberal-monetarist bias, implementing privatizations, financial deregulation, and commercial liberalization. It was in response to these new factors that Fiori and Saes found it necessary to refresh the ideas surrounding Brazilian dependent capitalism, naming the new standard “a brand-new dependency” through which the Brazilian authorities sought to dampen any efforts at a developmentalist project. Thus, the dependency of today is characterized by an absolute submission to the monetarist dogmas of monetary, fiscal, and exchange balances, whose discourse is mobilized from the economic integration of countries through globalization as a method of leveraging productivity in terms of work. However, in addition to hindering the national development of peripheral nations, financial deregulation has generated an increase in the vulnerability of underdeveloped countries that have begun to submit their macroeconomic policies to the imperatives of the global financial market, thus enabling the revaluation of international financial capital through differences in interest rates and the free global circulation of capital, with extensive subordination to world capital flows.

Changes in Global Capitalism and Brazil’s Transition to the Current Dependent Pattern

As the 1960s approached the 1970s, the Fordist accumulation regime went into crisis, with a drop in productivity and an increase in the cost of labor (Harvey, 1996). The United States, which during this period experienced an increase in costs due to the Vietnam War, was suffering growing deficits in its balance of payments, which were managed through monetary expansion (Chesnais, 1996). Ever since the Bretton Woods agreement, however, the dollar had been pegged to gold with the objective of controlling international macroeconomic imbalances—an attempt to achieve global financial regulation. From this perspective, the other countries that were signatories to the Bretton Woods agreement began to claim full parity with gold (Chesnais, 1996). The acceleration of U.S. indebtedness and monetary expansion generated a vicious circle of accumulation of liabilities for the United States, increasing its indebtedness in gold. The Nixon administration, advised by the neoliberal economist Milton Friedman (who defended the floating exchange rate and monetary and fiscal austerity [Friedman, 1982]), unilaterally abandoned the gold-dollar standard in 1971 (Chesnais, 1996). Two years later, the fixed but readjustable exchange rate regime was abolished, paving the way for the floating-exchange-rate model (Brunhoff, 1998; Chesnais, 1996).

In the area of production, the response to the crisis of the capitalist powers was the promotion of the Third Industrial Revolution, especially in the development of innovations that would benefit transport and communications and enable “flexible accumulation” (Harvey, 1996). New technologies stimulated investment in fixed capital, generating an increase in the unemployment rate and a loss of bargaining power for unions (Harvey, 1996), which, in turn, increased the integration of the world market and the expansion of global value chains to East Asia, coinciding with the Chinese trade liberalization promoted under the Deng Xiaoping government in 1978–1979 (Harvey, 2012).

With regard to finance, monetarist policies were encouraged, with progressive financial deregulation beginning in the early 1970s. Nevertheless, even during the Bretton Woods interval, already in the 1950s, the City of London encouraged monetary and exchange flexibility to attract capital from transnational corporations that was not being reinvested in production and ended up being accumulated in Europe (Chesnais, 1996; 2005). Thus, in 1954, the gold market was opened up, and this served as a basis for speculating in and putting pressure on the price of the dollar (Brunhoff, 1998); in 1958 an offshore company was created in London that helped establish the Eurodollar market (Chesnais, 2005). It was in this context of recycling the Eurodollars and petrodollars accumulated in London that Brazil began to participate in global finance. However, the Brazilian economic policy of that period still focused on internal industrial expansion through the use of foreign savings offered by cheap international credits due to the crisis of the 30-year “glory days of capitalism” (Cruz, 1984). In 1962, Law 4,131 ¹ regulated and liberalized the option of taking on international loans for transnational companies operating in Brazil and Brazilian state-owned companies (Cruz, 1984).

After the 1964 coup, the administration of Marshal Humberto de Alencar Castelo Branco (1964–1967) appointed two liberal economists, Octávio Gouvêa de Bulhões (finance minister) and Roberto Campos (minister of planning), to carry out a modernizing financial reform, creating the National Monetary Council and the Central Bank and establishing the economic indexation of National Treasury papers to inflation and monetary correction (Barros, 1993; Tavares and Assis, 1985). Therefore, the capital market in Brazil was regulated and capable of issuing the first domestic public debt securities—adjustable National Treasury bonds and National Treasury bills, which sought to control the nation’s monetary policy and provide the upper-income classes with guarantees against currency devaluation resulting from high inflation.

In 1967, in an effort to promote Brazilian industrial advancement, the newly created Central Bank issued Instruction 63, ² which facilitated the external financing of companies with national private capital, whose foreign loans had previously had to be mediated by local financial institutions (Cruz, 1984). In 1969, under the management of Antonio Delfim Netto at the Ministry of Finance, the open market was created (Barros, 1993)—the beginning of operations between the financial market and the state in monetary regulation. Both Law 4,131 and Instruction 63 increased the country’s foreign indebtedness during the Economic Miracle ³ and the second National Development Plan, which was launched as part of the Brasil Potência project in 1974 by President General Ernesto Geisel (1974–1979) (Cruz, 1984).

The official discourse used by the military was that Brazil needed to use “foreign savings” to advance domestic industrialization, since, in its opinion, the country did not have sufficient positive domestic capital balances to promote the acceleration of the local investment rate (Cruz, 1984). From 1977 on there was an increase in foreign indebtedness in which its dynamics became procyclical, resulting in the “vicious financial circle” through which the country started to request new international loans to pay off debts (Cruz, 1984). Foreign debt emerged as a credit model mostly demanded by private companies, both domestic and foreign (Cruz, 1984). Nonetheless, after the mid-1970s, when the economy slowed down, the private sector’s participation in international loans was reduced as the public sector took over the liability for foreign credits (Cruz, 1984). In 1977, Central Bank Resolution 432 created a hedge mechanism for local companies that took on foreign loans to shield them from possible changes in local exchange-rate policy, resulting in the socialization of losses (Cruz, 1984), mainly following the domestic policy of currency devaluation that occurred in 1979 and 1983.

These changes triggered the “nationalization of foreign debt” (Cruz, 1984), which was also stimulated by the Geisel administration’s local monetary policy of keeping interest rates high, as well as by the prohibition of providing domestic lines of credit to state companies and control of the price adjustment of public companies providing services (Cruz, 1984). An increase in the U.S. Federal Reserve’s basic interest rate in 1979 resulted in the foreign debt crisis of the underdeveloped countries during the 1980s, in which 75 percent of international loan contracts in the Brazilian public and private sectors were linked to floating interest rates, whose referential index was the percentage charged in the United States or England (Baer, 1993; Cruz, 1984). The 1982 Mexican default aggravated Brazil’s fiscal problem as creditors stopped lending to Latin American nations (Baer, 1993). On the international capitalism stage, the consequence of the Volcker Shock was the shift to the liberal-monetarist doctrine that served as the basis for the rise of financialization in addition to reestablishing the dollar’s hegemony (Brunhoff, 1998) and consolidating the power of “dollar imperialism” (Sampaio Jr., 2011).

The politics of the 1980s was marked by the transition to the hegemony of monetarist doctrines and financialization as the economic direction chosen by Brazil’s political authorities. In 1981, when the country began to face a strong economic recession, restrictive fiscal and monetary policies were implemented, and they prevailed for the first half of that decade. Faced with a recessive framework, a deficit in the balance of payments, and limited foreign financing after the default in Mexico, Brazil sought economic assistance from the International Monetary Fund (IMF) to honor its financial liabilities (Baer, 1993). For its part, the multilateral agency demanded an expansion of fiscal adjustment, which meant that Brazilian national accounts would begin to be inspected by IMF agents (Sampaio Jr., 1989).

In the second half of the 1980s, inflation, which had been increasing since the late 1970s, experienced a cyclical acceleration that worsened the devaluation of the national currency. The response of the postdictatorship administrations of José Sarney (1985–1989) and Fernando Collor de Mello (1989–1992) was the execution of a series of economic plans, from monetarist-orthodox to heterodox price freezes, for containing the high inertial inflation, which, because of the economic indexation that had been established in the 1965 financial reform, raised domestic prices (Barros, 1993). The main solution adopted was a monetarist squeeze in which very short-term interest rates—the overnight of the daily interbank credit market—came to be used as a measure of economic indexation, becoming a safe haven for private agents against high levels of inflation (Barros, 1993). In this context, the Treasury papers linked to the overnight assumed the status of “indexed currency” (see Barros, 1993), which sought to emphasize the autonomy of public bonds in financial maintenance and valuation in a context of high inflation and loss of credibility of the national currency. The use of papers anchored to the overnight facilitated the execution of speculative moves by financial agents in transactions between indexed currency (government bonds) and the official national currency in which institutional investors carried out arbitrage between the two assets (Belluzzo and Almeida, 2002). In other words, speculative betting on expectations with regard to the future variation of their value was established between the two types of assets.

The end of the 1980s was marked by attempts at negotiations to resolve the problem of foreign debt. The United States itself and foreign creditors used the Baker and Brady Plans to allow the indebted countries of Latin America to renegotiate their debts. Both prepared by former U.S. Treasury secretaries, the first plan failed and the second, despite being modest in terms of restructuring the debts of peripheral nations, managed to achieve some success, especially for foreign creditors (Marçal, 2000). Brazil, which negotiated directly with foreign creditors, started the process during the Collor de Mello administration and ended it in 1994, during Itamar Franco’s tenure (1992–1994), when the unit of real value, a precursor of the real (today’s national currency), was already in operation as a unit of account. In the foreign debt renegotiation agreement, the securitization of the debt was established, creating seven kinds of public bonds ⁴ (Marçal, 2000). These measures helped creditors to disseminate assets into new securities in the secondary market (Marçal, 2000), which benefited them with speculative gains.

From Subordinate Incorporation to Financialization

Before completing the renegotiation of its foreign debt, in the early 1990s, Brazil had already accomplished its subordinated entry into globalized finance. The first Collor Plan, despite employing the heterodoxy of freezing private savings, had a clear liberal bias, favoring a defense of free exchange, reduction of public spending, cuts in subsidies, privatization, sale of federal assets, dismissal of civil servants, readjustment of salaries by fixed indexes, trade liberalization with reduction of import tariffs, and expansion of foreign capital inflow into the country (Belluzzo and Almeida, 2002). With regard to the latter, “the liberalization of internal transitions involved the reduction of hitherto existing barriers to the entry of foreign investors into the domestic stock market and the expansion of residents’ access to external sources of financing” (Prates, 1997: 104). In addition to having stimulated the outflow of capital during his tenure by reducing taxes on remittances of profits abroad, Collor regularized depository receipts, contracts owned by foreign companies (in this case, Brazilian) sold in foreign financial markets (Biancarelli, 2010; Prates, 1997).

In 1994, in an effort to reintegrate itself into the international financial market after frustration in the 1980s as a result of the foreign debt crisis, Brazil also became a signatory to the Basel I Accord ⁵ (Machado, 2011). The year 1994 also marked the implementation of the Real Plan, which was carried out in three phases and had the objective of combating the high inertial inflation that had been going on for years. First, at the end of 1993, a fiscal adjustment was made to obtain a small stock of international reserves. Second, in March 1994 the unit of real value, which combined the prices of goods, contracts, and the exchange rate and was adjusted daily through three price indices, was launched. Salaries, however, were mandatorily grouped together in an average of the previous four months. Third, in July 1994 the real was created, bringing into one the prices of the old currency and the unit of real value (Belluzzo and Almeida, 2002; Filgueiras, 2000).

Consequently, the essence of the Real Plan was monetary stabilization through “exchange anchorage,” which, despite not legalizing free convertibility between currencies, did link the real to the dollar by maintaining a high domestic basic interest rate and through the country’s commercial and financial liberalization, ⁶ thereby attracting institutional investors located in the domestic and foreign financial markets (Belluzzo and Almeida, 2002; Filgueiras, 2000). As noted by Paulani (2013), since the Real Plan Brazil has become an “international financial valuation platform,” with the local ruling class favoring and providing for the accumulation of capital by internal and external agents through the implementation of liberal-monetarist economic policy.

In 1995, Fernando Henrique Cardoso, the finance minister who had implemented the Real Plan, became Brazil’s president. His two terms in office (1995–2002) further entrenched measures that favored sectors with connections to financial capital. With a discourse focused on avoiding double taxation, his government enacted Law 9,249, which exempted owners of companies from paying income tax on dividends. Under this law, only the capital gains earned by corporate management (before being distributed to shareholders) are taxed by the state. Currently, Brazil and Estonia are the only nations that have this type of legislation benefiting financial agents (Austeridade e retrocesso, 2016). ⁷

Another modification of the Brazilian economic model in the 1990s related to the public debt, in which securities debt (the issuance of public bonds on the open market) became the main form of state financing and the main pillar of the country’s monetary policy, benefiting institutional investors who traded financial assets across the various global markets. It was in this context that the real became one of the main targets in foreign exchange and interest-rate-derivatives trading through carry trade operations. According to Prates (1997), in 1996 the derivatives market traded on the Mercantile and Futures Exchange (BM&F, now B3) was ranked the fifth-largest stock exchange in the world, and in 1997 interest-rate-derivatives transactions accounted for 42 percent of operations while foreign exchange corresponded to 35 percent.

The Asian and Russian crises caused global financial destabilization, with agents seeking security assets in developed countries; approximately US$40 billion left the country during only three months in 1998. In this context, the Cardoso administration launched the Fiscal Stability Program—an increase in taxes and primary surplus indices—to guarantee the financial market that the country would ensure the payment of its debts (Filgueiras, 2000). Despite this, the currency crisis worsened, and Brazil once again turned to the IMF, which issued new requirements to disburse the loans that were required under the agreement. These requirements included the devaluation of the real, ⁸ continuation of the policy of commercial liberalization and financial deregulation, acceleration of privatizations, implementation of liberal reforms, and the promotion of a fiscal adjustment with data on primary surplus and interest payments (Filgueiras, 2000).

Since then, a tighter fiscal economic policy has been consolidated because, as required by the IMF agreements, the Fiscal Responsibility Law, which required strict controls over public spending, was enacted in 2000. After the 1999 exchange rate devaluation, economic policy followed the neoliberal guidelines of the macroeconomic trifecta (primary surplus, floating exchange rate, and inflation-targeting regime), an adaptation of monetarist principles to Brazilian peripheral capitalism, since exchange-rate parity to the dollar was unsustainable. This orientation of Brazilian macroeconomic policy continues to this day, despite the primary deficits that have existed in the national economy since 2014.

In turn, the Workers’ Party administrations (2003–2016) implemented a policy that actually resulted in an increase in internal contradictions. On the one hand, in an effort to generate a reconciliation of the classes, there was a focus on social matters. With the commodities boom cycle, domestic economic growth was sought through an expansion of consumption made possible by public loans (payroll-deductible and real estate), the real valuation of the minimum wage, job creation, and, since the financial crisis of 2008, subsidies to the durable goods sectors. In addition, there was a reduction in extreme poverty, expansion of federal universities, and social programs that included the University for All Program, the Bolsa Família, and My House, My Life. On the other hand, the Luiz Inácio Lula da Silva administration (2003–2010) “kissed the cross” (Arantes, 2003) of financialization, in which the Workers’ Party implemented a profound and active monetarist policy. This resulted in an expansion of the macroeconomic trifecta in comparison with Cardoso’s; whereas the average primary surplus had been 2.5 percent of the gross domestic product (GDP) in 2003–2005 and 2.3 percent of GDP in 2006–2008, it had been only 1.9 percent in the second Cardoso administration (1999–2002) (Barbosa and Souza, 2010). The bureaucratized union sectors of pension funds managed to get involved in the Lula administration and also adhered to the dogmas of financialization (Oliveira, 2003). During the eight years of Lula’s administration, the Central Bank was chaired by Henrique Meirelles, former global president of Bank Boston. His management was characterized by expanding Brazilian financial liberalization, facilitating the outflow of capital from Brazil (Biancarelli, 2010).

Despite the fact that Law 11,033, issued in December 2004, aimed to regulate taxation of securities, it represented a continuation of the dependent and submissive incorporation into globalized finance in that its Article 3 created a tax exemption for income received by individuals from investments in portfolio capital related to agribusiness letters of credit, real estate letters of credit, and earnings from shares worth less than R$20,000 per month. Meanwhile its Article 4 tax-exempted legal entities for foreign investors and investment funds that required a special regime. Both the incentives for attracting portfolio capital to Brazil and the growth of commodities exports between 2003 and 2008 resulted in the significant accumulation of Brazilian international reserves, which, for weak-currency countries, mainly serve as a guarantee for institutional investors who trade securities of peripheral nations in moments of reversal of world liquidity cycles—when there is international financial instability, with capital flight and insolvency.

International reserves are also at the heart of financialization, favoring the transfer of global resources from the South to the North (Lapavitsas, 2013). In financialization, circulation of capital across the globe is favored by the free mobility of capital of financial liberalization. As a result, a large part of the private savings of the central countries migrates through institutional investors into peripheral financial markets in pursuit of the valuation obtained from the high interest rates maintained in underdeveloped nations as a risk premium for external agents. As a result, this difference between interest rates, together with the free international mobility of capital, represents a major part of the transfer of resources from the South to the North, where the center’s financial investments come back valued as a result of gains made through interest.

Lula’s main purpose in promoting an accumulation of international reserves was, first, to demonstrate to the financial market the nation’s capacity to reduce and manage risk in a context of economic liberalization and, second, to obtain an investment grade that ended up lasting from April 2008 to September 2015. The agencies that rank countries according to their macroeconomic and financial risk management capacity maintain strong ties with the principles of financialization, since they also sell their services to private equity financial institutions. In the precrisis context of 2008, the degree of security had been offered to the investment banks that were central to forming the infamous subprime bubble. To achieve its investment grade in addition to carrying out an austere macroeconomic policy, in 2005 Brazil made an advance payment on the loans taken out with the IMF in 1998, thereby demonstrating to the financial market that the country was part of the “good-payer” scenario.

International reserves are the result of a country’s positive balance of payments. However, ever since Brazil entered into financialization, with the exception of the period between March 2003 and mid-2007 (IPEA-DATA, 2019), there have been recurrent deficits in its current transactions, with the need for foreign capital inflow to even out the balance of payments. Therefore, the accumulation of international reserves occurred only through the direct action of the Central Bank in the purchase of daily surpluses from the interbank market (secondary exchange market) at the exchange rate in effect at the time of the transaction (Prates, 2015). The real was the second-most-traded currency in foreign exchange markets in 2010 (Paula and Prates, 2015) and the third-most-traded in 2014 (Rossi, 2016). The counterweight to forming international reserves through the purchase of the excess foreign financial capital that came into the country was an expansion of Brazil’s external liabilities through the paradoxical mechanism of increasing the country’s external vulnerability (Sampaio Jr., 2011), since in doing this the state undertakes to settle the papers issued to financial market agents within the terms of their maturities.

Thus, the combination of the restrictive monetary policy and the floating exchange rate with complete Brazilian financial liberalization led the country to subordinate itself to the dogmas of financialization, with broad benefits for domestic and foreign owners of financial capital. This passive incorporation into globalized finance constituted the primordial pattern of a brand-new dependency involving macroeconomic policies and legislative changes specific to the country’s transformation into an “international financial valorization platform” (Paulani, 2013).

The Dilma Rousseff administration (2011–2016), in turn, was marked by measures with the supposed bias of attacking the financial gains of domestic and foreign agents, since it forced the reduction of spreads and implemented a nominal reduction of the basic interest rate between September 2011 and April 2013 (BACEN, 2021). Nevertheless, in 2011, the first year of her term, against a backdrop of a slowdown in the world economy as a result of the 2008 crisis, Rousseff raised the primary surplus target to 3.1 percent of GDP, and the Central Bank raised the basic interest rate until August, when it reached the level of 12.5 percent per year (BACEN, 2021). These two operations were clearly convergent with financial anxieties and resulted in the reduction of public investment for the realization of the primary surplus in a context of fiscal tightening (Serrano and Summa, 2015).

Rousseff’s administration also expanded the controversial economic policy of granting subsidies to the industrial sector by reducing payroll taxes on productive companies with the objective of maintaining economic growth on the basis of family consumption. However, this attempt to boost the local economy did not have the desired effect, since companies did not recover their profitability in a context of increased international competition and high family indebtedness (Mello and Rossi, 2017; Serrano and Summa, 2015). The subsidies offered to entrepreneurs drastically reduced federal tax collection, which, added to the expenses caused by interest on public debt, engendered the fiscal deterioration of the Brazilian state (Mello and Rossi, 2017).

Despite the interest rate’s dropping from 12.5 percent in September 2011 to 7.25 percent in October 2012 and remaining at this level until April 2013 (BACEN, 2021) and the government’s forcing a reduction of the spread through competition among public banks, the Brazilian real interest rate remained among the highest in the world. This was because at the same time the central countries had adopted the fiscal and monetary incentive policy of quantitative easing, which drastically reduced their interest rates (at times to the point of including negative nominal rates) in an attempt to reactivate their recessionary economies in the aftermath of the 2008 subprime crisis. In fact, the Brazilian interest rate rose again when the former U.S. Federal Reserve president, Ben Bernanke, announced that the institution would review U.S. monetary easing, starting with a tapering phase in which monetary stimuli began to be withdrawn (Mello and Rossi, 2017). Foreign exchange policy in the Rousseff government was also contradictory. In 2011 it was decided that taxes would be charged on operations with foreign exchange derivatives to try to control agents’ speculative anxiety. However, in 2013 the government changed course, eliminating taxes levied on foreign exchange transactions to work only with market-friendly foreign-exchange–derivative swap contracts offered by the Brazilian state (Mello and Rossi, 2017; Rossi, 2016).

Given the fiscal deterioration and the imminent economic crisis (which occurred in 2015), the 2014 presidential race was marked by a fierce debate regarding the political-state directive on economic planning. During the campaign, Rousseff, who was up for reelection, centered her discourse on the active role of the state through interventionist policies in a dynamic that alluded to its historical developmentalism and Keynesian measures. This discourse was victorious over that of her opponent, Aécio Neves, who defended a liberal-monetarist policy. Beginning with her second term as president, however, she paradoxically ended up promoting the economic policy defended by her adversary. She called on the neoliberal economist Joaquim Levy, former director of the private bank Bradesco, to head the Ministry of Finance, which deepened Brazilian fiscal austerity by implementing a strong adjustment of national accounts, with a significant drop in public expenditures and investment.

The economic policy implemented since 2015 has accentuated the pattern of subordinated incorporation into financialization. In the midst of the economic crisis, with the monetarist theory of fighting inflation (which had accelerated as a result of a liberalization of the prices of energy, fuel, and other things), there was an increase in the basic interest rate to 14.25 percent (BACEN, 2021) and increasing fiscal tightening. Public spending plummeted from 12.8 percent in 2014 to 2.1 percent in 2015, and public investment fell 29 percent in the same period (Mello and Rossi, 2017). Domestically, the economic crisis resulted in major fiscal restrictions, an increase in private indebtedness of families and companies, the abrupt liberalization of administered prices, and an economic slowdown. Externally, the crisis was the consequence of both the Chinese economic slowdown and the effects of the 2008 crisis on the world economy.

At the same time as the domestic recession, the political scenario heated up. The local ruling class—anchored in regional oligarchies, the mainstream media, and the domestic financial sector—opted for an institutional rupture to deepen the imposition of political-economic counterreforms for the country. In this context, Rousseff was ousted from the government following a parliamentary coup in which the Brazilian oligarchies used the controversial argument of the illegality of the budget decrees (minor flexibilization of public spending) that were issued by her economic team throughout 2015. The parliamentary coup plotters also used the cynical discourse that the Michel Temer administration (2016–2018) would bring “economic confidence” (an ideology propagated by economists and politicians partial to neoliberal theory) back to Brazil, making it possible to overcome the crisis. Of course, this did not occur; rather, the crisis only deepened. After the institutional rupture came to fruition, the liberal-monetarist economic policy intensified in a dizzying manner. Temer, who was Rousseff’s vice president and one of the main players behind the parliamentary coup, became president and tried to promote neoliberal counterreforms in the productive and financial capital sectors.

Constitutional Amendment 95, enacted in 2016, radicalized fiscal austerity by freezing public spending at the inflation rate of the previous year for a period of 20 years. The Temer administration also expanded the deregulation of federal revenue from 20 percent to 30 percent. This law, dating to 1994, during the Franco administration, had been constantly updated so that the government could manage its revenue as it saw fit, prioritizing the payment of interest and amortization of federal public debt while taking money away from social policies, which ended up being scrapped over time.

Another action implemented by Temer was labor reform, including the priority of negotiations over legislation, the legalization of intermittent work, the liberalization of the outsourcing of core business activities, allowing pregnant women to work in unhealthy areas, and other measures that made work precarious. The Temer administration also changed the interest rate applied by the National Bank for Economic and Social Development, which encouraged productive investment through subsidized interest, making it equal to the indices stipulated by the private credit market in establishing the long-term rate.

In oil and gas, Petrobras’s pricing policy was changed to reflect the world market. The National Petroleum Agency also revised the mandatory participation of Petrobras in the exploration of the pre-Salt (an area with huge oil reserves), moving from production-sharing contracts to the concession model, which favored large multinational oil companies, and dismantling the local-content policy, which had required that major portions of capital goods related to oil production be produced domestically to favor national production and job creation.

Finally, in the monetary field, it took a long time to lower the domestic basic interest rate during this worst Brazilian economic crisis (BACEN, 2021), resulting in the unemployment level’s soaring to 13.6 percent in April 2017. Between October 2016 and March 2018, the Central Bank slowly reduced the Selic rate from 14.25 percent to 6.5 percent per year. In July 2019 the Selic rate began to drop again, and this decline accelerated after the onset of the COVID-19 pandemic, allowing the interest rate to reach 2 percent per year in August 2020. However, this did not mean a break with the subordinated incorporation into globalized finance, since mainstream liberal-monetarist theory recommends that central banks increase interest rates in times of economic growth to contain inflationary pressure and reduce interest rates in times of crisis in an attempt to boost the economy.

The nefarious neo-fascist Jair Bolsonaro, who was elected president of Brazil in 2018, allied himself with the radical liberal-monetarist orthodoxy of the economist Paulo Guedes, his minister of the economy, who appointed mainstream economists to manage state-owned companies so that they could be privatized. For the Central Bank, Guedes nominated Roberto Campos Neto, who was Banco Santander’s trader and had many years’ experience in the international financial market. In addition to promoting proto-fascist policies in the area of security—including an attempt to allow people to bear arms by presidential decree, which was rejected by the Senate and is awaiting a legislative analysis of the bills related to the subject, and passing an anticrime package ⁹ —and scrapping public education, ¹⁰ the Bolsonaro government has been deepening Brazil’s incorporation into financialization without showing any concern for what is a clear increase in its vulnerability to global speculative moves.

Among the main liberal proposals of Bolsonaro’s administration in the economic arena are social security reform, with the official austerity discourse claiming that the state would save R$800 billion over 10 years; privatization of state companies such as occurred with BR Distribuidora (a distributive branch of Petrobras); and the ratification of the free-trade agreement between Mercosur and the European Union, which was announced in June 2019 but met with resistance in the European Union parliaments due to systematic attacks on the environment and indigenous groups by the Bolsonaro government.

In the field of monetarism, Complementary Law 179, passed in February 2021, legally formalized the independence of the Central Bank. The new law established a term of four years for the president and directors of the bank that does not coincide with the term of the president of the republic, price stability, financial market efficiency, and the pursuit of full employment. It also allowed the bank’s president and directors to be active in other financial institutions and even be shareholders. As Lapavitsas (2009; 2013) reminds us, in the context of financialized capitalism central banks represent the connection between states and financial markets in the management of monetary policy, thereby benefiting banks and investment funds with discretionary measures. In Brazil, particularly, through the Focus Bulletin, the weekly meetings between the chief economists of the most important banks operating in the country and representatives of the Central Bank (Bastos, 2017) demonstrate an interaction between the public and private sectors in the direction of domestic monetary policy. In fact, after it was declared independent, the Central Bank, arguing that inflation was accelerating without analyzing the causes of this (an increase in food and oil prices and exchange rate devaluation), again raised the Selic rate with three successive increases of 0.75 percentage points each and two others of 1 percent each, reaching 6.25 percent per year in September 2021 (BACEN, 2021). Not even 14.6 percent unemployment was able to contain the monetarist fetish of raising interest rates.

Another unusual proposal was the defense by the president of the Central Bank, Campos Neto, of free convertibility of the real and the dollar. ¹¹ Bill 5,387, which analyzes the measure, has been approved by the Chamber of Deputies and is awaiting a vote in the Senate. Finally, although the COVID-19 pandemic made the Bolsonaro government promote fiscal expansion in Brazil, with a primary deficit that reached R$743 billion in 2020, providing emergency aid to unemployed or informal workers, ¹² and the transfer of R$60 billion to states and municipalities due to the decline in tax collection, the growth of public expenditures did not mean a break with the permanent fiscal austerity model, given that the fiscal tightening jurisprudence under Constitutional Amendment 95 is being maintained and that there are also proposals to increase control over public spending.

From this perspective, the enactment of Constitutional Amendment 109 in March 2021 is an important fiscal ingredient of the financial market’s aspirations. Despite the “calamity clause,” which allows the extension (though less than what was necessary) of emergency aid, the new law establishes fiscal triggers to be applied when mandatory expenditures reach 95 percent of primary expenditures, with the restriction of salary increases for public employees, suspension of new tenders, and the prohibition of launching new subsidies and the reduction of existing ones. As a result, fiscal austerity is becoming more and more severe, eliminating constitutionally established rights and undermining the state’s role in combating historical social inequalities.

All these mechanisms point to Brazil’s continuous and unlimited subordinate incorporation into globalized finance, implemented by administrations with different political-ideological views and thus ratifying the structural paradigm of a brand-new dependency.

Conclusion

Throughout this article, I have sought to analyze the contemporary form of dependency, privileging the decisions made by the local ruling class in the context of their political and socioeconomic choices, which, on the one hand, trigger internal social contradictions and, on the other, advance subordination to the dominant interests linked to domestic and foreign finance. Contemporary Brazilian capitalism is shaped by the brand-new dependency described by Fiori and Saes. The state is failing to carry out the economic planning for the implementation of social policy to alleviate underdevelopment that would be more important than fiscal and monetary control, and this, combined with financial liberalization, engenders a pattern of subordination to capitalist powers that increases the country’s vulnerability to recurring cycles of crises and liquidity.