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The Brazilian Economic Stabilization Programme, known as the Real Plan, is the most successful of all plans attempted to overcome Brazil’s problems with high inflation in the 1980s and in the beginning of 1990s. In these periods, a series of different monetary plans had been carried out, such as Cruzado (1986), Bresser (1987), Verão (1989), and the two Planos Collor I (1990) and II (1991). The Real Plan was put in place in 1994 and led to the substitution of the currency then in use (Cruzeiro) for the Real. One of the main motivations of the Plan was to eliminate the vicious factors that were underlying strong indexation in Brazil and thus a chronic inflation process. These changes were initially achieved by the URV (real unity of value), which was established as a transitional reference for prices, paving the way for the introduction of the Real as a new currency. These changes were brought about without any kind of price controls or freezing, in contrast with previous plans. The main features of the Real Plan were: (a) a gradual approach to the monetary reform; (b) the “deindexation” of the economy through the use of the URV; and (c) the appreciation of the currency, which was pegged to the dollar, although on the basis of a much more flexible exchange rate mechanism than a currency board, as the one contained in the “convertibility” plan in Argentina. In brief, the Real Plan combined a domestic, monetary anchor with an external one. These anchors were controlled by higher interest rates and appreciated exchange rates. Later a very gradual path of depreciation of the currency was engineered to stimulate the economic activity in line with the requirements of price stability and international competition. As a consequence, the Plan successfully resulted in a rapid and sustained decrease of the inflation rate. From 1980 to 1993, before the Real Plan, the average annual rate of inflation (IGP-DI) was about 450%. The annualized rate was at 5,154% in June 1994, when the Plan was launched. It dropped dramatically to 22% at the end of 1995, and since 1996 it has been kept below 10%. The monetary stability brought about by Plano Real allowed not only a new expansion in economic activity, but also improvements in distribution and real income of middle and lower classes. Especially the latter, which had no financial protection against strong indexation, have experienced important improvement in their well being. From 1980 to 1993 the average real rate of growth of the economy was 2.1% per annum. For most the period from 1994 to 1997, the real growth rate was kept between 3% and 6%. [Top]