Arminio Fraga, Soros Fund Management
Prior to joining Soros Fund Management in early 1993, Arminio Fraga
served as a board member and director of international affairs at
the Banco Central do Brasil. During his year and a half at the
central bank, Fraga was involved in negotiations with the IMF, the
Paris Club and private creditors, as well as managing the bank’s
foreign exchange desk and reserves and the reforming of foreign
investment laws and regulations.

On his days at the central bank…
We were the second economic team under President Collor. The team
was headed by Marcilio Marques Moreira and Francisco Gros, and I
went down to work with them. Our goal was first to try to stop the
bleeding. We had no reserves. All the assets were frozen, the
privatization program was stuck and inflation was really high. We
actually had as one of our goals to negotiate a stand-by agreement
with the IMF, and in fact we did. It was a great experience to work
with the IMF on a project.

On Brazil’s IMF agreement…

Brazil needed it. It was so far out at the time in terms of
unorthodoxy that we thought a good dose of old-fashioned sound
finance made a lot of sense. We knew that if you wanted to get rid
of inflation, you had to get rid of indexation. You had to take
care of the whole thing, not just inflation. Our first goal then
was to get the basics in place and get rid of all the controls
before we tackled stabilization.(The most critical moment was)
probably when we floated the exchange rate. We had a dual exchange
rate and there was a spread between the two rates. We floated the
commercial rate first and then the floating rate. We were at the
time also lifting price controls and lifting all the blocked
cruzados. There was a lot of concern at that time that we would go
into hyperinflation. We floated when we reached the critical level
of foreign exchange reserves, but that also made us extremely

On Marcilio Marques Moreira…
He was terrific in many ways. He brought in the notion that you had
to be consistent. He thinks about consistency in institutions and
the rule of law. I learned a lot working with him. He had the
ingredient that was lacking in Brazil-patience and perseverance. Up
until then, it had been a long time since Brazil had a monetary
policy. Inflation started going down and fiscal numbers began to
improve, but unfortunately Brazil lost a couple of years with the
political crisis that followed the impeachment. At that point, we
realized all our plans were going to be shelved. So, basically, we
all left after the vote. Those last six months were very
tough.(Other important people) were Mario Simonsen and Pedro Malan.
Simonsen had shaped generations of economists, first through his
teaching and then through his own research. I always felt that I
was an indirect student of his. He was a great teacher and he had
an ability to think about problems that were really affecting
Brazil. He was one of the first to analyze debt dynamics in general
and understand what it meant. Later in his life, he had a broad
social impact through a bi-weekly column he wrote. He always had a
very clear, unbiased approach to looking at things.Pedro Malan came
from a different background. He came from the military regime where
he did research at the government economic research institute. He
then went to Washington, but people were always paying attention to
what he had to say. I had him as a teacher in school when I was an
undergraduate. Then he took on the responsibility for debt, and
when I had a chance to go work side-by-side with him it was quite a
thrill. He did so much work at the central bank and had a steady
hand behind the Real Plan. His continuity and steadfastness has
brought a lot to Brazil. He is finally getting the credit he
deserves. He has done a remarkable job at bringing Brazil out to be
part of the world. It came slowly and painfully, but it came. And
now with Cardoso it has blossomed.For Brazil, a change of heart in
the Congress came in 1991-1992. We were looking at Mexico doing
well, Chile doing well, and then Cavallo came along in Argentina. I
realized a lot of people in Congress who were supposed to be so
hostile and so against everything were not really that way. People
had had enough of the malaise of the 1980s. It was then that
Cardoso seized the moment and had the guts to take a chance,
something which will be to his eternal credit. It seems that people
in Brazil suddenly realized that being part of the world was a good
thing. I actually think the privatization of the two state
banks-Banespa and Banerj-were just as important as any other major
deal, and they were a bit different. They represented a monetary
and fiscal drain for the state, not simply a case of inefficient
management. Their privatization signaled the end of an era of
inflationary and fiscal leakage. Their books had been completely
non-transparent and all off-budget with tremendously negative
implications for stability. The fact that they got done was amazing
and a dream come true.

On key words symbolic of regional changes…
Stabilization, internationalization, privatization. Now we’re also
seeing transparency and consistency.