Abstract
Conventional wisdom associates the two lost decades of economic stagnation in Brazil to macroeconomic imbalances and excessive budgetary deficits. Contrary to conventional wisdom, the fiscal crisis of the state in Brazil was the result of the liberalization strategy that started in 1989 and was accelerated and complemented during the Cardoso administration (1995—2002). The fiscal crisis of the state resulted from the financial liberalization of the 1990s and the increasing burden of interest payments on public debt. The interest burden, in turn, meant that fiscal spending on social policy was squeezed, a result that is common in liberalization experiences in the periphery. The amount of social spending was insufficient during the Cardoso administration, and problems were not restricted to inefficient spending.