Gustavo Franco
Encyclopedia
Gustavo Franco is a Brazil
ian economist
, born April 10, 1956 in Rio de Janeiro
.
Gustavo Franco received a bachelor's (1975–1979) and master's (1983) degree in economics from the Pontifícia Universidade Católica do Rio de Janeiro
(PUC-Rio). His M. A. thesis received the prestigious "Prêmio BNDES de Economia" for M. A. thesis in economics in 1983, and was later published as a book titled "Reforma monetária e instabilidade durante a transição republicana" ("Monetary reform during the republican transition").
Franco earned his Ph.D Degree at Harvard in 1986, with a dissertation on hyperinflations in the 1920s in Europe (Germany, Austria, Hungary, and Poland). This work was awarded the "Prêmio Haralambos Simionides" in 1987, for the best Ph.D thesis or book in economics by the ANPEC, Associação Nacional de Centros de Pós Graduação em Economia (National association of graduate studies in economics).
Returning to Brazil in 1986, as an assistant professor at the [Departamento de Economia da PUC do Rio de Janeiro] (economics department at PUC-Rio), Franco worked as teacher, researcher and consultant from 1986 to 1993, specializing in inflation stabilization policies, economic history, and international economics. He published extensively during the period, including many articles in peer-reviewed journals, and books, such as: Foreign direct investment and industrial restructuring: issues and trends (co-authored with Winston Fritsch), published (also in French) by the Development Centre Studies, OECD Development Centre, OECD, Paris, 1991; and "A Década Republicana: o Brasil e a economia internacional - 1888/1900" (The Republican Decada: Brazil and the international economy, 1888–1900), published by IPEA-INPES in the series PNPE nº 24. Rio de Janeiro, 1991.
Between 1993 and 1999, Franco was active in public service. He was Deputy Secretary of Economic Policy at the Finance Ministry for a few months before moving to the Central Bank of Brazil as the Deputy Governor responsible for International Affairs (1993–1997), and later as the Governor of the Central Bank of Brazil (1997–1999). During these years Franco received many awards, including "Economista do Ano 1997" (Economist of the Year, 1997), presented by the Ordem dos Economistas (National Economists Association), and “Central Banker of the year, 1998”, presented by Euromoney, September 1998.
A former President of the Brazilian Central Bank, he was forced to resign in January 1999 during a currency crisis
. He was a strong supporter of fixed exchange rate
s between the Brazilian real
and the United States dollar
. He was replaced by Chico Lopes.
was empowered as Minister of Finances in Brazil, his main task being to control the imminent hyperinflation
, which was then nearing 30% per month.
To compose his team, Mr. Cardoso invited some economists from PUC-Rio all with education in American universities, including Pedro Malan
, Pérsio Arida
, André Lara Resende, Winston Fritsh and Gustavo Franco.
With political support from Cardoso, the team devised and implemented the Plano Real
, which brought the inflation down to much lower levels, and helped Cardoso win the elections for President in 1994. Gustavo Franco had a key role in this team, not only for his contributions in the economics side, but also because he realized that such a Plan would need strong judicial support, and took for himself the task of drafting the legal pieces which would assure the validity of the Plan.
After winning the election, Cardoso invited Gustavo Franco to occupy positions in Government. Franco was first Economics Advisor in the Minister of Finances, then Director for International Affairs in the Central Bank of Brazil, and eventually President of the Central Bank.
Gustavo Franco saw the exchange rate
as a key factor in the Plano Real: first, because by having the Real pegged to the dollar, the inflation in Reais
and in dollars would be at similar levels. Also, by keeping the Real overvalued and by lessening restrictions to foreign trade, Franco affirmed that Brazilian businesses would have no other way to survive than increasing their productivity. Later, surveys would show Brazilian productivity indeed had a remarkable growth after the Real Plan.
This politics was contested by the industries and attacked by speculators. The industries asked for subsidies and demanded protection against 'unfair' foreign competition; little was conceded.
The speculators attempted to bet against the Real, forcing a devaluation by the Central Bank
. While Franco was in the Bank, however, the currency followed a linear devaluation
of about 6% per year, even during periods of international turbulence, such as the Asian financial crisis in 1997 and the Russian financial crisis in 1998. In a few occasions, Franco himself took control of the currency bidding operations. Using his knowledge and the legal authority of the Central Bank, Franco imposed heavy losses on the speculators.
Besides his key role in monetary politics, Franco was also important in another area: fiscal politics. Pedro Malan, Gustavo Franco and their team thought that the Government spent too much and too badly, and looked for ways to improve the situation. Several measures were adopted, including privatization
of large State owned companies, closing of State banks, and limitations to States expenditures. This culminated with the issuing of the Law of Fiscal Responsibility in 2000.
In 1999, Fernando Henrique was starting his second term in presidency, and the criticisms against the fixed currency rate were piling up. In January 1999, still in the aftermath of the Russian crisis, a new attack against the Real started. Fernando Henrique decided to let the Real float against the dollar. Franco remained against the measure and the quit the Government.
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
ian economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
, born April 10, 1956 in Rio de Janeiro
Rio de Janeiro
Rio de Janeiro , commonly referred to simply as Rio, is the capital city of the State of Rio de Janeiro, the second largest city of Brazil, and the third largest metropolitan area and agglomeration in South America, boasting approximately 6.3 million people within the city proper, making it the 6th...
.
Career
Son of Maria Isabel Barbosa de Barroso Franco and Guilherme Arinos Lima Verde de Barroso Franco, who was a friend and assistant of President Getúlio Vargas, and also a member of the first board of Directors of the Brazilian National Development Bank, BNDES.Gustavo Franco received a bachelor's (1975–1979) and master's (1983) degree in economics from the Pontifícia Universidade Católica do Rio de Janeiro
Pontifícia Universidade Católica do Rio de Janeiro
The Pontifícia Universidade Católica do Rio de Janeiro is a private and non-profit Catholic university, located in Rio de Janeiro, the second largest city of Brazil...
(PUC-Rio). His M. A. thesis received the prestigious "Prêmio BNDES de Economia" for M. A. thesis in economics in 1983, and was later published as a book titled "Reforma monetária e instabilidade durante a transição republicana" ("Monetary reform during the republican transition").
Franco earned his Ph.D Degree at Harvard in 1986, with a dissertation on hyperinflations in the 1920s in Europe (Germany, Austria, Hungary, and Poland). This work was awarded the "Prêmio Haralambos Simionides" in 1987, for the best Ph.D thesis or book in economics by the ANPEC, Associação Nacional de Centros de Pós Graduação em Economia (National association of graduate studies in economics).
Returning to Brazil in 1986, as an assistant professor at the [Departamento de Economia da PUC do Rio de Janeiro] (economics department at PUC-Rio), Franco worked as teacher, researcher and consultant from 1986 to 1993, specializing in inflation stabilization policies, economic history, and international economics. He published extensively during the period, including many articles in peer-reviewed journals, and books, such as: Foreign direct investment and industrial restructuring: issues and trends (co-authored with Winston Fritsch), published (also in French) by the Development Centre Studies, OECD Development Centre, OECD, Paris, 1991; and "A Década Republicana: o Brasil e a economia internacional - 1888/1900" (The Republican Decada: Brazil and the international economy, 1888–1900), published by IPEA-INPES in the series PNPE nº 24. Rio de Janeiro, 1991.
Between 1993 and 1999, Franco was active in public service. He was Deputy Secretary of Economic Policy at the Finance Ministry for a few months before moving to the Central Bank of Brazil as the Deputy Governor responsible for International Affairs (1993–1997), and later as the Governor of the Central Bank of Brazil (1997–1999). During these years Franco received many awards, including "Economista do Ano 1997" (Economist of the Year, 1997), presented by the Ordem dos Economistas (National Economists Association), and “Central Banker of the year, 1998”, presented by Euromoney, September 1998.
A former President of the Brazilian Central Bank, he was forced to resign in January 1999 during a currency crisis
Currency crisis
A currency crisis, which is also called a balance-of-payments crisis, is a sudden devaluation of a currency caused by chronic balance-of-payments deficits which usually ends in a speculative attack in the foreign exchange market. It occurs when the value of a currency changes quickly, undermining...
. He was a strong supporter of fixed exchange rate
Fixed exchange rate
A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.A fixed exchange rate is usually used to...
s between the Brazilian real
Brazilian real
The real is the present-day currency of Brazil. Its sign is R$ and its ISO code is BRL. It is subdivided into 100 centavos ....
and the United States dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
. He was replaced by Chico Lopes.
Plano Real
In 1993, (future President of the Republic) Fernando Henrique CardosoFernando Henrique Cardoso
Fernando Henrique Cardoso – also known by his initials FHC – was the 34th President of the Federative Republic of Brazil for two terms from January 1, 1995 to December 31, 2002. He is an accomplished sociologist, professor and politician...
was empowered as Minister of Finances in Brazil, his main task being to control the imminent hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...
, which was then nearing 30% per month.
To compose his team, Mr. Cardoso invited some economists from PUC-Rio all with education in American universities, including Pedro Malan
Pedro Malan
Pedro Sampaio Malan , is a Brazilian economist and former Minister of Finance for Brazil.-Early life:Pedro Sampaio Malan was born in 1943 in Petropolis, a town in honor of Dom Pedro II to the north of Rio de Janeiro...
, Pérsio Arida
Pérsio Arida
Pérsio Arida is a Brazilian economist.In the 1970s, he was a part of the student activist movement in Brazil, being arrested and tortured....
, André Lara Resende, Winston Fritsh and Gustavo Franco.
With political support from Cardoso, the team devised and implemented the Plano Real
Plano Real
The Plano Real was a set of measures taken to stabilize the Brazilian economy in early 1994, under the direction of Fernando Henrique Cardoso as the Minister of Finance, during the presidency of Itamar Franco....
, which brought the inflation down to much lower levels, and helped Cardoso win the elections for President in 1994. Gustavo Franco had a key role in this team, not only for his contributions in the economics side, but also because he realized that such a Plan would need strong judicial support, and took for himself the task of drafting the legal pieces which would assure the validity of the Plan.
After winning the election, Cardoso invited Gustavo Franco to occupy positions in Government. Franco was first Economics Advisor in the Minister of Finances, then Director for International Affairs in the Central Bank of Brazil, and eventually President of the Central Bank.
Gustavo Franco saw the exchange rate
Exchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
as a key factor in the Plano Real: first, because by having the Real pegged to the dollar, the inflation in Reais
Real
Real may also refer to:* Reality, the state of things as they actually exist, rather than as they may appear or may be thought to be.-Finance:* Inflation adjusted amountsCurrencies:* Brazilian realFormer currencies:* Mexican real* Portuguese real...
and in dollars would be at similar levels. Also, by keeping the Real overvalued and by lessening restrictions to foreign trade, Franco affirmed that Brazilian businesses would have no other way to survive than increasing their productivity. Later, surveys would show Brazilian productivity indeed had a remarkable growth after the Real Plan.
This politics was contested by the industries and attacked by speculators. The industries asked for subsidies and demanded protection against 'unfair' foreign competition; little was conceded.
The speculators attempted to bet against the Real, forcing a devaluation by the Central Bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
. While Franco was in the Bank, however, the currency followed a linear devaluation
Devaluation
Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....
of about 6% per year, even during periods of international turbulence, such as the Asian financial crisis in 1997 and the Russian financial crisis in 1998. In a few occasions, Franco himself took control of the currency bidding operations. Using his knowledge and the legal authority of the Central Bank, Franco imposed heavy losses on the speculators.
Besides his key role in monetary politics, Franco was also important in another area: fiscal politics. Pedro Malan, Gustavo Franco and their team thought that the Government spent too much and too badly, and looked for ways to improve the situation. Several measures were adopted, including privatization
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
of large State owned companies, closing of State banks, and limitations to States expenditures. This culminated with the issuing of the Law of Fiscal Responsibility in 2000.
In 1999, Fernando Henrique was starting his second term in presidency, and the criticisms against the fixed currency rate were piling up. In January 1999, still in the aftermath of the Russian crisis, a new attack against the Real started. Fernando Henrique decided to let the Real float against the dollar. Franco remained against the measure and the quit the Government.