In this chapter preview from Pathways to Freedom: Political and Economic Lessons From Democratic Transitions, Carlos Pio analyzes Brazil’s transition from military rule to democracy and from economic instability to growth and social inclusion.

May 31, 2013 10:37 am (EST)

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This preview highlights the main points of the Brazil chapter from Pathways to Freedom: Political and Economic Lessons From Democratic Transitions, a publication of the Civil Society, Markets, and Democracy Initiative. For previews of other chapters, please see the Table of Contents.


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Brazil’s democratic transition, begun in 1979 by military rulers facing an economic crisis, proved gradual, reasonably peaceful, and steady. After the return of democracy came market-oriented reforms, inflation control, and innovative programs to assist the poor. Despite pitfalls and ongoing obstacles, the country has enjoyed an increasingly vigorous democracy, some growth, and widening opportunity.

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During much of the twentieth century, Brazil alternated between quasi-representative government and authoritarianism. The country’s cornerstone economic policy, beginning in the 1930s, was import substitution industrialization (ISI). The government promoted domestic industries through state-owned enterprises, infrastructure investment, and incentives to favored private firms. A strong safety net, including health care and pensions, existed only for formal urban workers, who benefited from bargains driven by their unions.

For forty years this strategy delivered strong, if uneven, economic gains. Business groups, unions, and an emerging middle class supported the government’s economic policies and the rise of a technocratic ruling elite.

Despite its relative success in promoting manufacturing, ISI imposed a heavy fiscal burden. External debt soared from $5.3 billion in 1972 to $31 billion in 1978. Meanwhile, a combination of regressive taxation, inflationary fiscal and monetary policies, currency appreciation, and protectionism began to hurt Brazil’s poor and stymie its exports.

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When worldwide interest rates rose following the global oil crisis of 1978–79, Brazil’s economy staggered under an external debt crisis, shrinking reserves, and spiraling inflation. Intended to boost exports, a 30 percent currency devaluation instead made a bad situation worse. Social mobilizations blossomed in the manufacturing heartland near Sao Paulo, and confidence in the military’s competence sank.

Under these circumstances, the military launched a gradual democratic transition in 1979. The generals expected a controlled process of increasingly open electoral competition, though they did not expect to lose power as soon as they ultimately did. They liberalized laws governing elections and parties in 1981 and instituted direct elections for major state and municipal offices to occur in 1982 and 1985.

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Economic pressure continued to increase. After international financing suddenly ceased in 1982, Brazil’s only alternative to default was a loan from the International Monetary Fund (IMF). Restrictive policies mandated by the IMF plunged the country into stagflation, provoking social and economic turmoil and damaging the economic rationale for authoritarian rule.

In 1983 and 1984, continued discontent swelled into a tsunami of protest. This led the military to adopt a hands-off approach to the indirect 1985 presidential election. Opposition candidate Tancredo Neves won with the backing of many longtime regime supporters. However, he died shortly therafter, never taking office. Ironically, this made Jose Sarney, the vice president and former leader of the pro-military party, Brazil’s first civilian president since 1964. Sarney opened the party system, called a constitutional assembly, and liberalized trade-union controls. Once the military withdrew to the barracks, it never meddled in politics again.

The subsequent two decades saw the consolidation of Brazil’s democracy. Sarney’s successor, Fernando Collor, was impeached in 1992 over corruption allegations in a process largely free from irregularities. Finance Minister Fernando Henrique Cardoso implemented the Real Plan in 1993–94, which tamed Brazil’s persistent inflation, catapulting him to the presidency. Luiz Inacio Lula da Silva succeeded Cardoso in 2002, capping the two-decade transition to democracy.

Pathways to Freedom: Political and Economic Lessons From Democratic Transitions, a new book from the Council on Foreign Relations, explores Brazil’s progress and challenges in six areas of economic, political, and social development.

Socioeconomic Exclusion and Inclusion

Brazil’s social policies long benefited mainly the families of urban, unionized workers with formal contracts. The democratic constitution of 1988 changed this, universalizing access to health facilities and boosting spending on primary education and pensions. Beginning in 1995, Brazil’s government also adopted targeted social spending programs called conditional cash transfers (CCTs). These programs were expanded in 2001 and, in 2003, unified by President Lula under the brand Bolsa Familia, which grew to cover twelve million families.

This mix of universal safety nets and targeted income distribution extended social protection to long-excluded Brazilians. Blacks felt perhaps the biggest impact. For decades, Brazil’s black population was largely denied education and political participation, given that illiterates could not vote. Today, 61 percent of Brazil’s poor are black, yet blacks make up less than 10 percent of the population.

Beyond targeted policies, pro-market reforms also boosted social inclusion. The move away from ISI benefited consumers, especially low-income ones, as trade liberalization reduced prices. Global competition also prompted Brazilian firms to move production into the lower-cost countryside, spreading employment to the rural poor.

Economic Structure and Policies

ISI produced a hangover of inflation, debt, stifling regulations, and minimal funds for social inclusion. Early democratic governments tried repeatedly—and unsuccessfully—to fight inflation without reducing spending. After at least five rounds of wage and price controls, inflation resurged, reaching more than 2,000 percent in 1993.

Cardoso’s Real Plan differed from these previous attempts. Cardoso launched the program after the government had begun market-oriented reforms, piloting a two-stage currency replacement to overcome core inflation driven by wage and contract indexation. Moreover, Cardoso’s team insisted on government spending reductions first, subduing inflationary pressures before the de-indexation of contracts.

Lula, long a critic of the Real Plan and other market-oriented reforms, grudgingly accepted most of them once elected. He let the Central Bank set interest rates and sustain a floating exchange rate. He also kept fiscal balance as a central commitment. Meanwhile, Lula expanded targeted income distribution schemes, safety nets, and healthcare and education for the poor. Overall, Brazil’s post-1990 reforms fundamentally departed from the ISI model and stimulated strong growth, benefiting the poor as both workers and consumers. Nonetheless, structural obstacles to sustained growth and inclusion still abound.

Civil Society and Media

Both international and domestic organizations countered authoritarianism in Brazil. Amnesty International and the Vatican’s Pontifical Commission for Justice and Peace played early roles in denouncing torture. Foreign media broadcast news of political repression. Inside Brazil, the Catholic Church, Brazilian Bar Association, and Brazilian Press Association were important voices. The church and bar association were initially divided between backers and opponents of the military regime, but both gradually grew supportive of greater rights. The Movement of Landless Workers (MST) and the Uniao Nacional dos Estudantes (UNE)—Brazil’s primary association of college students—were active in left-wing politics

Unions were also instrumental in Brazil’s transition, as was the Workers’ Party, created by a union faction in 1982. With President Lula’s election in 2002 at the party’s head, the movement’s leaders (as well as those of MST and UNE) ascended to senior positions, boosting their influence but weakening their independence from the state.

Finally, Brazilian media—allowed increasing freedom starting in the late 1970s—spread information about growing anger with the regime. Television networks criticized the military government less than did newspapers, but all media embraced the new liberties they received under civilian rule.

However, Brazil’s transition increased the number of radio and television licenses granted by the government in exchange for political support. Many politicians now own stations, allowing them to manipulate coverage.

Legal System and Rule of Law

Despite Brazil’s robust transition, the rule of law remains inequitable, tilted in favor of privileged citizens and politicians. The current constitution, like previous ones, entitles college-educated Brazilians to special prison cells. A complex appeals court structure benefits those who can pay to manipulate formalities to their advantage. And those who can afford competent lawyers can avoid detention and influence judges’ decisions. Brazil’s prison system is 50 percent over capacity and home to violence and ill treatment. Moreover, the military police, which handles civilian law enforcement, practices torture and nonjudicial executions.

The 1988 constitution established an independent prosecutor’s office that has tried to fight Brazil’s enduring culture of impunity. Although these efforts are promising, critics have cited prosecutors’ apparent tendency to pursue crusades in tune with left-wing agendas. After Brazil’s Supreme Court reaffirmed in 2010 the validity of the 1979 Amnesty Law passed by Congress with the military government’s backing, the Inter-American Court of Human Rights ruled that the law should not prevent investigations into the dictatorship’s alleged violations. This subject remains unresolved.

Government Structure and Division of Power

Brazil’s federal system dates from 1889, but its previous legacy as a unitary country means that the union is powerful in relation to its twenty-six states. Most governors try to advance their state’s agenda by influencing national politics. In the last two decades, federalism has increasingly meant nationally designed policies that take states’ particularities into account. States normally accept federal conditions on their policies in exchange for more federal funds.

The Chamber of Deputies and state and local legislatures are elected through a proportional system that encourages the proliferation of parties. More than twenty are currently represented in Congress. No president, therefore, can govern without building a large coalition. This can encourage compromise and the gradual accommodation of ideological differences. However, it also hinders parties from honoring promises and governing consistently, sometimes producing stalemate and confrontation, as in the case of President Collor’s impeachment.

Education and Demography

Brazil’s 1988 constitution fixed minimum spending requirements for education: 18 percent of federal and municipal budgets and 25 percent for states. In the 1990s, over objections from the Congressional opposition and teachers’ unions, the Cardoso administration offered municipalities incentives to promote school attendance, set minimum teacher salaries (triggering raises in rural areas), and assess student and teacher performance, among other steps. This combination of constitutional and policy reforms produced nearly universal primary enrollment by 1997, expanding human capital and opportunities for the poor.

However, infrastructure and education quality remain challenging. In the countryside, 6 percent of schools still lack electricity, 12 percent lack clean water, and 40 percent lack adequate sanitation. Meanwhile, in international tests in 2010, Brazilian fifteen-year-olds ranked fifty-third of sixty-five countries in reading and fifty-seventh in math. On average, whites continue to attain more years of schooling than blacks, and illiteracy is almost three times higher in rural than in urban areas.


Brazil’s political transition occurred in tandem with crucial economic reforms. To tackle the economic crisis left behind by the military, Brazil needed to balance its budget and pursue market-oriented policies as well as aggressively expand social inclusion. At times, it seemed nearly impossible to advance reforms that were both effective and politically feasible. But Brazilians persevered, forging a largely successful strategy of growth with equity.

Additional Material

Brazil: Full Chapter Preview
Brazil Timeline
Further Reading


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