Historical Notes: Denio Nogueira and the Brazilian Economic Miracle Dênio Nogueira and the Brazilian Economic Miracle

Historical Notes (continued)

Dênio Nogueira and the Brazilian Economic Miracle

Dênio Nogueira : (1920-1997). Born in Rio de Janeiro, Dênio Nogueira was an economist of the Fundação Getúlio Vargas, a graduate of Michigan University, and editor of the prestigious Conjunctura Econômica for 15 years.

Dênio Nogueira was Superintendent of Money and Credit (1964-1965) and the first president of the Brazilian Central Bank (1965-1967).

The Brazilian Central Bank, established under the reforms of President Castelo Branco and the economic leadership of Finance Minister, Octávio Gouvêia de Bulhões, and Minister of Planning Roberto Campos, was intended to be an independent institution like the U.S. Federal Reserve. Consequently, Dênio Nogueira's term as president of the Central Bank extended beyond the term of office of President Castelo Branco.

However, when President Costa e Silva assumed office, his finance minister, Delphin Netto, a São Paulo economist backed by the powerful Paulista banking community, was incensed to find that he could not control the Central Bank.

He engineered the removal of Dênio Nogueira from office. This not only ended the concept of an independent central bank, but hastened the transfer of the financial center from Rio de Janeiro to São Paulo.

Dênio Nogueira was one of a group of economists of the Fundação Getúlio Vargas who had been committed to the idea of developing the Brazilian capital market since the late 1950s, including José Garrido Torres, Mário Henrique Simonsen, Roberto Campos, and Octávio Gouvêia de Bulhões.

The Fundação Getúlio Vargas was located on Botafogo Bay in Rio de Janeiro, the capital of Brazil until the 1960s.

In 1960, Dênio Nogueira, at the suggestion of José Garrido Torres, invited John Schroy to submit articles on reforming the capital market for publication in Conjunctura Econômica, along with a monthly review of the equity market, featuring the Média S-N .

Among the reforms proposed in John Schroy's articles was the elimination of the hereditary monopoly on intermediation held by official stockbrokers.

Predictably, this created opposition from this privileged class, reflected in a series of letters to the editor and rebuttals, published in the magazine in the early 1960s.

This discussion bore fruit after the Revolution of 1964, when opening the stock exchanges to new brokers was one of the key reforms.

Dênio Nogueira on becoming the first head of the Brazilian Central Bank, recognizing the need for new ideas in the stock exchange community, suggested to John Schroy, an ex-City-banker, that he set up a new brokerage houses to serve as a model.

This led to the founding of S-N Investimentos S.A., a leading broker-dealer until the 1990s.


Economic Miracle : The transformation of the Brazilian Economy from a predominantly agricultural economy into a major industrial power over the period 1964-1979 is referred to as the 'Economic Miracle'.

Throughout most of Brazilian history, economic activity had been characterized by dependence upon mono-cultural agriculture: sugar, rubber, cacao, and coffee.

The cash generated from exporting agricultural products provided the means to acquire manufactured goods from the rest of the world. When crops failed, as occurred periodically, the country passed through financial crises.

Slaves Milling Sugar CaneSlaves on a sugar plantation in Imperial Brazil

However, even before the Economic Miracle, Brazil was not entirely without an industrial sector.

A textile industry had existed since the 19th century, as did factories for food stuffs, beverages, tobacco products, soaps, and the like.

In 1941 , a government steel mill was built in Volta Redonda. Other steel mills already existed in Minas Gerais since the 19th century.

In the 1930s and 1940s, light manufacturing sprung up around the city of São Paulo.

Nevertheless, by the 1950s, Brazil was still far behind Europe and the United States in industrial production.

Most mechanical and electrical goods — from automobiles, airplanes, machine tools, refrigerators, computing equipment, to air conditioners, safety glass, and medical equipment — had to be imported.

For three hundred years, Brazil passed through cycles of boom and bust. During good times, there was money to import luxury items favored by the wealthy plantation owners.

With foreign exchange 'wasted' on the 'superfluous', there not enough capital to build local industry.

As a result of World War II, fighting along side the Americans in Italy, the Brazilian military became seized with the idea that national security depended upon the formation of an industrial base.

However, although Brazil emerged from World War II victorious and flush with cash, this money was quickly spent on luxury items and there was again a shortage of capital for industrial development.

Imported Automobiles in BrazilSavings spend on imports of luxury goods left a shortage of capital for industry

To break this cycle, in 1951 a system of exchange controls and import licensing was inaugurated.

In 1952, the National Economic Development Bank (BNDE) was established.

By the end of the 1960s, the policies of managed capital flows aimed at building local industry and 'import substitution' were well established.

However, the vast amount of foreign capital and know-how that was needed to create a major industrial economy seemed beyond reach.

  • First, nationalistic and leftist governments raised the specter of expropriation, labor unrest, and political uncertainty.
  • Second, long term investment was discouraged by the risk of radical change of government every five years.

The Revolution of 1964 and the installation of stable government for the foreseeable future was a key element in the Brazilian Economic Miracle.

The military government had a clear goal of fast industrialization and the discipline to maintain the course for fifteen years.

During the years of the Economic Miracle, the government set specific goals of 'nationalization of production' for certain industries.

Foreign capital was welcomed and protected, but domestic industry was also encouraged by development of the local capital market.

By 1979, the results were simply astounding. Brazil could now produce automobiles, making everything from the steel to the paint to the safety glass and the engines.

Not only that, Brazil was now producing and exporting airplanes and precision machine tools.

Airplane produced by Brazilian industryAs a result of the Economic Miracle, Brazil now exports commercial jets

But the miracle was not confined to manufacturing. Electric power generation was equally impressive. In the 1950s, it was widely thought that Brazil did not have enough fossil fuel resources to create the resources needed for industrialization.

Although there was water power, the rivers were far inland or at vast distances from industrial centers.

Furthermore, some regions of the country were subject to droughts that would reduce power generating capacity in some years.

The solution was a nationwide grid of dams and power lines, run by the state power monopoly, Electrobras.

During the years of the Economic Miracle, Brazilians built some of the world's largest dams and power facilities, often in distant jungle locations, and connected in such a way that droughts in one region could be compensated by power from other dams, thousands of miles away.

The grid brought cheap electricity to growing industrial centers in São Paulo, Minas Gerais, and Rio Grande do Sul.

Itaipu hydroelectric dam in BrazilDuring the Economic Miracle, Brazil achieved self-sufficiency in clean energy by building the world's largest hydroelectric projects.

Just as there some who argue that the Nazi holocaust never occurred, there are leftist revisionists of Brazilian history that claim today that the 'Economic Miracle' was a fiction.

After the return of 'democracy' in 1979, the discipline and focus needed to maintain and expand the Economic Miracle no longer existed.

The magnificent hydro-electric power system was broken into pieces at the insistence of the International Monetary Fund.

The fiscal discipline for rationing capital flows dissolved in the hands of weak-minded socialists and corrupt civilian politicians. The economy collapsed.

The great mistake of the government during the years of the Economic Miracle was not to include reform of the primary educational system in the program.

Unlike South Korea and Singapore, Brazil did not take advantage of authoritarian rule to effect as substantial improvement in the educational system as the planners had done in industry and commerce.

This resulted in a nation with a strong industrial base, but without a corresponding educational structure and weakened by 'democracy' in which demagogues now exploited mass ignorance for corrupt ends.


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