ROBERT SIEGEL, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
MARY LOUISE KELLY, host:
And I'm Mary Louise Kelly.
Yesterday, Brazil held presidential elections. And later this month, the top two candidates will meet in a runoff. The favorite is the hand-picked successor to the country's popular president, Lula de Silva. Lula, as he's known, has led Brazil through a time of record growth and growing global influence.
SIEGEL: The country's success is truly remarkable if you remember that just 20 years ago inflation in Brazil reached 80 percent a month. Our Planet Money team takes a look now at the largely unknown story of how Brazil, in two decades, became the power it is today. Here's NPR's Chana Joffe-Walt.
CHANA JOFFE-WALT: Basically what happened was this: four former grad school buddies tricked an entire country of 150 million people into saving their economy. They had a crazy, unlikely plan, and it worked. Now before we meet them let's look quickly at the problem they were trying to solve.
Think about 80 percent inflation a month. 80 percent inflation means in Brazil in 1990, one day eggs would cost $1, the next $1.02 - by the end of the month they're almost double the price. And by the end of the year, if inflation continues, eggs are $1,000.�
In practice, that meant stores in Brazil had to change their prices everyday. People remember the sticker man in the grocery store who would walk the aisles daily with new price stickers.
Ms. MARIA LEOPOLDINA BIERRENBACH: And the whole day this machine's doing this. Bah, be, bah, bah, bah.
JOFFE-WALT: This is Maria Leopoldina Bierrenbach. Maria was a housewife with four kids. And she tells me people used to race ahead of the sticker man to grab their cereal before the price went up. Now, Maria wasn't the running type. She would politely ask the sticker man to stop and wait. If he didn't, she'd pull off his new sticker, walk up to the register and pay the old price.�
Ms. BIERRENBACH: But then they discovered the machinina - the small machine.
(Soundbite of making machine sounds)
Ms. BIERRENBACH: And that you couldn't do anything because it printed the price. That wasn't easy to take off.�
JOFFE-WALT: Brazil's problem with inflation started in the 1950s when the government printed money to build a new capital in Brasilia. By the 1980s, the inflation pattern was in place And it went something like this: New president comes in with a new plan, freezes prices, freezes bank accounts. President fails, gets voted out or impeached. Repeat.
Maria Leopoldina Bierrenbach says the plans succeeded at only one thing: Convincing every Brazilian that the government was helpless to control inflation.
Ms. BIERRENBACH: Nothing worked. And it was much, much worse than it was before.
JOFFE-WALT: There was one more option, one no one knew about, dreamed up by a couple guys at the Catholic University in Rio. The only reason they enter the picture now or ever is because in 1992 there happened to be a new finance minister who knew nothing about economics. And he called one of our heroes, Edmar Bacha.
Mr. EDMAR BACHA: And he said, well, I've just been named the finance minister. You know that I don't know economics. So please come to meet me in Brasilia tomorrow.
JOFFE-WALT: What'd you think?
Mr. BACHA: Well, I was terrified.
JOFFE-WALT: Bacha had been waiting for decades for this call. He and three friends had been studying Brazilian inflation since they were in graduate school. Four buddies at the campus bar complaining to each other that no one else knew how to fix this. And now they were being told fine, do it your way. Bacha was invited to meet the president.
Mr. BACHA: And then I asked, you know, an autograph for my kids. And then he wrote a note addressed to my two kids and say please tell your father to work fast for the benefit of the country.�
JOFFE-WALT: The four guys set about explaining their idea. You have to slow down the creation of money, they said. But just as important, you have to stabilize people's faith in money itself. People were the problem. People had to be tricked into thinking money had value when all signs told them that was absolutely not true.�
They wanted to a new currency, one that was stable, dependable, trustworthy. The only catch was this currency would not be real. No coins, no bills. It was fake. They called it a virtual currency.
Mr. BACHA: We called a Unit of Real Value - URV. Yes. Yeah, it was a -virtually didn't exist in fact.
JOFFE-WALT: People would still have and use cruseros - the local currency. But everything would be listed in URVs, the fake currency. Their wages would be listed in URVs. Taxes were in URVs, and all prices were listed in URVs. And URVs were kept stable. Bacha's colleague Andre Lara explains, for example, when you went to the store and bought say some milk...
Mr. ANDRE LARA: How much does it cost? Say, well, now we have it costs X, let's say, one URV. Well, how much is that, because I cannot pay you with URV? Say, well, I have this little table here. And today's value of URV in cruseros is seven cruseros per URV. So it costs one URV, seven cruseros. You pay seven cruseros. You go next week, well, it's still one URV. But then you say how many cruseros? You look, well, 14.�
JOFFE-WALT: The idea was that you would start thinking in URVs. And you'd stop expecting prices to always go up.�So that was the plan. And it was a weird one.
Ms. BIERRENBACH: We didn't understand it, what it was. We ask how much is that? Oh it's so many URVs. I used to say it was a fantasy because it was not real.
JOFFE-WALT: Still, people used it without being forced to. And after a few months, prices started to mean something.
Mr. BACHA: And then when we were satisfied that prices were relatively in good synchrony we declare, well, from this day the virtual currency becomes a real currency. The crusero real is going to disappear. And everyone is going to receive from now on its wages and pay for all the prices in the new currency which is the real. That is the trick. You see?
JOFFE-WALT: July 1st, 1994, the Central Bank deployed truckloads of new cash in this new currency - the real - to banks in the cities, to provinces and waited on the ready for the four economists to say go. That fake money you've been using? It's now real.
Mr. BACHA: And I remember you know, the day that we launched the real. I had this journalist who had become a friend of mine. And then she came to me and said professor, do you swear that inflation's going to end tomorrow. I said yes, I swear.
Ms. BIERRENBACH: We were in awe. Everybody was very happy.
(Soundbite of laughter)
JOFFE-WALT: In less than six months, the plan literally turned Brazil's economy in the opposite direction. It set the stage for everything that has happened in the country since:�The economy grew. Brazil became a major exporter. 20 million people rose of poverty.�
In just 20 years, Brazilians have gone from an absolute faith that their currency has no value to an absolute faith that its value will never changed and to a solid and growing belief that Brazil is a next global power.
Chana Joffe-Walt, NPR News.
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