How Four Drinking Buddies Saved Brazil : Planet Money Inflation in Brazil was out of control for a decade. Four former drinking buddies from grad school fixed it. | Subscribe to our weekly newsletter here.

How Four Drinking Buddies Saved Brazil

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[NOTE: This transcript reflects the original episode. There may be updates from this version not reflected here.]

JACOB GOLDSTEIN (BYLINE): Hello, and welcome to PLANET MONEY. I'm Jacob Goldstein. Today, we are replaying one of my all-time favorite episodes of PLANET MONEY. It came from Chana Joffe-Walt back in 2010. Here it is.


CHANA JOFFE-WALT (BYLINE): Fifteen years ago, money basically had no value in Brazil. The inflation rate in Brazil in 1990 was about 80 percent a month. So imagine just going to the store. Like, one day, eggs will cost $1 in the store. And then tomorrow, they would be $1.02. And the next day, they'd be $1.04. By the end of the month, they would have almost doubled. And by the end of the year, if inflation continues, eggs would be $1,000. So that was what things were like in Brazil in the 1980s and the early '90s, and it is what they would still be like right now, today, if it were not for some unlikely heroes, the most unlikely group of national heroes you can imagine, four former drinking buddies from grad school with a crazy plan who were suddenly put in charge of the country's biggest economic crisis ever. But before we meet them and hear their story, let's paint a picture of the problem that they set out to solve. So remember, prices were going up every day in the '80s and early '90s. And if you think about what that actually means in the supermarket, they had to change prices every day. Caetano Ferrari (ph), this flirtatious 75-year-old in Sao Paulo that I met, remembers that that was someone's job, to walk the aisles and change the prices.

CAETANO FERRARI: There is a guy who changed the sticker. You pass the guy (laughter), and they would buy things.

JOFFE-WALT: Wait, you would walk by the guy. You would, like, get in front of him.

FERRARI: You run.

JOFFE-WALT: In front of him.

FERRARI: In front of the guy and buy things like that.

JOFFE-WALT: So that you could get to the goods before he changed the price.

FERRARI: Yes, like that.

MARIA LEOPOLDINA BIERRENBACH: And the whole day, this machine doing this.

JOFFE-WALT: This is Maria Leopoldina Bierrenbach, someone with a very Brazilian long name who spent a lot of time in supermarkets during high inflation. Maria was a housewife with four kids. And she wasn't really the running type. She'd politely ask the sticker man to stop and wait. If he didn't, she had another trick. She'd pull off his new sticker, walk up to the register, and pay the old price.

BIERRENBACH: But then they discovered the machinina, the small machine. And that you couldn't do anything because it printed the price. That wasn't easy to take off.

JOFFE-WALT: Inflation was a pain for people who shopped in stores as well as for people who ran those stores because the problem is you can only possibly know that inflation was 80 percent a month in retrospect. At the time it's actually happening, you have no idea. This is one of the pernicious effects of sustained high inflation. You assume because prices were going up in the past that they're going to continue going up in the future, but you don't really know how much, how much do you tell the sticker man to raise prices by. So every business in Brazil had to develop different strategies. So some people just set a number for what prices will be. They just said, prices will go up 2 percent every day. Other store owners would go and, like, just peak at the store down the road and see what their prices were and copy them. And others would look at the exchange rate with a dollar. So people like Isaac Guercman (ph), he ran a textile factory in a row of textile businesses. And his method was looking at the exchange rate with the dollar combined with good old-fashioned collusion. Every morning, Isaac would get together with the other textile guys.

ISAAC GUERCMAN: In Brazil, it's very common that you start your day having a glass of coffee, and we sought out the weekend and how our football team has done. And then someone probably would say, how much you going to start, you going to charge? What is the dollar exchange rate? And somebody else would say, was $9, now it $10 so that I have to increase my prices 10 percent. And, you know, it's not an exactly science.

JOFFE-WALT: Brazil's problems with inflation all started in the 1950s. The government wanted to build a new capital in Brasilia, and they wanted nice buildings, fancy architects, and didn't have the savings to pull it off, so it created the money to do it. Now this is an option countries are often tempted to take. They can print money to pay for things they can't afford. The problem, of course, is inflation. So if there is $100 in the economy and you create a hundred more, now every dollar is worth half as much. That's inflation. And in Brazil, inflation continued for the next five decades. Year after year, Brazilian money was worth less and less. And this causes all sorts of problems, not just with the sticker man. You know, say you get a $1,000 bonus and you put that money in your drawer. A year later, it's worth half as much. So the minute you get paid, the clock is ticking on your money. I talked to one man who told me he used to have nightmares about his money sitting still on his dresser just losing value. A beer manufacturer told me he stopped making beer because making beer just takes too long. You buy all the grains and hops, and by the time it was brewed, everything was worth so much less. So by the 1980s, inflation was the number one political issue. And so began the plans to fix it. Now it turns out the best person to talk to about this is Maria Leopoldina Bierrenbach, the housewife who peeled off the stickers in the supermarket, because Maria can take you through a detailed history of each president's failed plan to stop inflation. But you have to ask Maria each question twice because the first time, she always answers like this.

BIERRENBACH: I don't know because I never had to do anything. I was just a plain housewife and mother.

JOFFE-WALT: And then Maria will proceed to be the most knowledgeable person you will speak to on any topic. OK, so first up, President Sarney in 1985. And President Sarney's solution to inflation was simple. Businesses are raising prices? Make that illegal. There was a price freeze. Now, there were many problems with that idea, beginning with the fact that no one in the country believed it would actually solve inflation. They figured there would be a time, probably in the near future, where the price freeze would go away.

BIERRENBACH: And you know what happened. People hid the merchandise (laughter). And you couldn't buy anything because they wanted the prices to grow up because the situation was a fantasy. It was not real. You couldn't find meat at the butcher's.

JOFFE-WALT: Because they weren't - so they just weren't buying meat to sell? Why couldn't you...

BIERRENBACH: ...They hid the cattle.


BIERRENBACH: Yes, you can do that here. It's a very large country.

JOFFE-WALT: So they hid the cattle, waiting for the price freeze to go away.


JOFFE-WALT: The main problem with this plan, of course, is you can't just freeze prices and not deal with the underlying problem, the fact that the government is still creating money, which causes inflation. So that was the next guy's idea. President Collor in 1990. He thought OK, I'll just stop creating so much money, inflation will eventually go down. Now here is the problem with that. It has to do with the country's banks. If you were in the small minority of Brazilians who had enough money to have a bank account, it felt like a really great deal because in order to get your money, banks had to pay you an interest rate that was higher than the rate of inflation. So in the U.S. you're lucky if you get 2 percent interest on your bank account. But in Brazil in 1990, people could get 2,000 percent or more. Money was growing in banks, which helped fuel inflation, which led President Collor to believe bank accounts were part of the problem. And here's where he went really, really wrong. He decided to freeze bank accounts. Eighty percent of private assets, 80 percent of the money you have in your bank account, you can't take out. Now Maria is telling me this and my translator, Flavio Ferreira, was sitting in on our conversation. And he could no longer keep quiet. He remembers when the minister of finance made that announcement.

FLAVIO FERREIRA (TRANSLATOR): And I remember the day when she was on TV, explaining that they were going to confiscate everybody's money. So next day's banks would not work. I remember the face of that woman. She had studied in the best schools, and she had been a professor at (unintelligible). And she was explaining to the nation, as an economist, why we need this to end inflation. We need the country to be - you know, to gather with us. But I remember I'm looking at her and said God, a government cannot do that. I mean, when a government does that, you lose people's respect.

BIERRENBACH: Oh, it was terrible. It was terrible. So many people committed suicide, you know?

JOFFE-WALT: When you mess with people's money, it does not go well. The economy went off a cliff. President Collor was impeached. There was a new president, a new finance minister, and inflation went back up again. The Brazilian economy was at a low point, and it looked like there was nothing to be done to fix it. So enter our heroes, those four economists we talked about at the beginning, who basically entered the picture now because that new finance minister knew nothing about economics. And so in March of 1993, he called one of our heroes, Edmar Bacha.

EDMAR BACHA (ECONOMIST): Oh, I was in my office at that university here, the Catholic university. And I got the call soon after I had finished teaching a class, you know? 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 Brazil tomorrow. We need you. Well, I was terrified.


UNIDENTIFIED SINGER: (Singing in foreign language).

GOLDSTEIN: We'll get the rest of the story after this.

UNIDENTIFIED WOMAN: Support for this podcast and the following message come from, who want you to know that with the holidays fast approaching, the post office is getting busier by the minute. Avoid the hassle and use instead. With, you can buy and print official U.S. postage for all of your letters and packages using just your computer and printer. Sign up for and use the promo code MONEY for a four-week trial and special offer, including postage and a digital scale. Go to, click on the microphone and type in MONEY.


UNIDENTIFIED SINGER: (Singing in foreign language).

JOFFE-WALT: Bacha had been waiting three decades for this call - ever since he and his three friends had taught graduate school together at the prestigious Catholic University in Rio. Four friends who had been studying Brazilian inflation for decades. Four buddies at the campus bar complaining to each other about how this government didn't know what it was doing and that government didn't know what it was doing. Four buddies who are now being asked by the government to come and fix things their way - the plan they'd spent years on. And so, of course, their first answer - no, we don't want to. Here's another one of the four, Andre Lara.

ANDRE LARA: This is a - this is a process. It's something that requires many years. It's not something that we can do. It's not a magic - it's not a trick that we do overnight.

JOFFE-WALT: When I asked Lara - wasn't it exciting, though? - he looked (laughter) - he looked kind of confused for a moment and then a scornful. People, he told me, should be interested in ideas, not feelings. They thought we had a trick. There is no trick. There is only long, hard, complex, multi-step macroeconomic plans modeled specifically for the Brazilian context. Bacha is the more casual of this pair. Yeah, he tells me, we had a trick, but I was busy, and I didn't really want to move to Brasilia. The government pressed on. Lara and Bacha were taken to dinner with members of Parliament who told them how much the country really needed them. They got calls at home. Senators told them, you will have free reign - whatever you think is best. Bacha was invited to meet the president.

BACHA: And then I asked him an autograph for my kids. And then he wrote a note - a note for addressed to my two kids and saying, please tell your father to work fast for the benefit of the country.


JOFFE-WALT: That's what he wrote in the autograph?

BACHA: Yes, yes. I still have that note (laughter).

JOFFE-WALT: So there's a lot of pressure.

BACHA: Oh, yes, yes, yes.

JOFFE-WALT: Now, I should say the four economists from the Catholic University were not reluctant because they doubted their plan. Dr. Lara does not strike you as someone who doubts anything that emerges from his mind.

LARA: Yes, I was pretty, pretty sure it was going to work. There was a lot of people that didn't understand it, even among professional economists - that didn't like the idea and thought it would lead us to hyperinflation - but from the beginning, I was sure.

JOFFE-WALT: There were a lot of people who weren't so sure the plan would work - the IMF, for one, nearly every citizen of the country of Brazil and Lara's direct collaborator on that plan, Bacha.

BACHA: And I know it's one thing to do it at your office. It is another thing to put the thing together, right? It had never, never been put in practice anywhere this way.

JOFFE-WALT: Bacha was eventually won over by the autograph and the finance ministers' appeals. And Lara was convinced by a parliamentary dinner where the politicians assured him they'd take whatever difficult measures were needed to keep his idea pure. So here was the idea. Basically, the four economists said, yes, you have to hit the underlying causes of inflation. You have to stop creating money, but you also have to stabilize people's faith in money itself. And this is where their plan was different. People were part of the problem, they thought - their perceptions. People had to be tricked into thinking money had value when all signs told them that was absolutely not true. So Bacha says they wrote a plan for a new currency - one that was stable, dependable, trustworthy. The only catch was this currency would not be real. It would not be printed. There would never be coins. It was fake. They called it a virtual currency.

BACHA: We call it a unit of real value - URVs. Yeah, it was a virtue that didn't exist, in fact.

JOFFE-WALT: People would still have and use cruzeiros, the local currency, but everything would be listed in URVs. Your wages would be listed in URVs, taxes were listed in URVs, and all prices in the stores are listed in URVs. And URVs would be held stable. And so, for example, when you went to the store and bought some milk...

BACHA: How much does it cost? Say, well, now we have it cost X - let's say one URV. Well, how much is that because I cannot pay with URVs? Well, I have this little table here. And today's value of URV in cruzerios is seven cruzeiros per unit. So it costs one URV - seven cruzeiros. You go next week. Well, it's still one URV. But then you say how many - how many cruzeiros? You look - well, 14.

JOFFE-WALT: Every night, the central bank would put out a memo with the official inflation rate of the day, and it would get printed in the newspaper the next morning so the store clerk could look it up. Monday one URV is equal to seven cruzeiros, Tuesday, 12 cruzeiros, Wednesday, 14. Milk or whatever it was you were buying would stay the same in URVs. And the idea was you would start thinking in the fake currency, in URVs, because just last week, you got paid 1,000 URVs. Milk costs one URV. Next month, you'd get 1,000 URVs again, and milk would still be one URV. The amount of cruzeiros, what you actually handed to the clerk, would change, but the price in URVs would not. That was the plan, which Bacha presented to the senator from Sao Paulo.

BACHA: And then when I explained to him the plan, you know, after a while, you know, he said, well, with some anguish in his voice, said, well, Bacha, if this is the only way that you tell me that it can be done, then we follow you to the precipice.

JOFFE-WALT: And so the four economists went about explaining to the country that everyone now should talk in a virtual currency.

BIERRENBACH: We didn't understand what it was. We asked, how much is that? Oh, it's so many URVs. I used to say it was a fantasy (laughter) because it was not real.

JOFFE-WALT: Still, people used it without being forced to. One store would be selling milk for one URV, and eventually all the stores would be. So people would know that's an appropriate price for milk, which I can tell because I got paid 1,000 URVs.

BACHA: And then when we are satisfied that prices were relatively in good synchrony, we declare, well, from this day, the virtual currency becomes a real currency. The cruzeiro 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, which is equal to one URV and also equals to $1. And that is the trick.

JOFFE-WALT: It wasn't the only trick, obviously. While they put URVs in place, the group of economists made the government balance its budget and slow down on money creation. And then one day, July 1, 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. All that fake money you've been using, it's now real.

BACHA: And I remember, you know, the day that we launching the real, I have 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 that's going to end tomorrow.

BIERRENBACH: Everybody was very happy (laughter).

JOFFE-WALT: Now I should say not everyone was happy. Brazil had had 50 years of high inflation. So remember that guy with the textile factory who had coffee every morning to figure out what to charge that day, Isaac Guercman? He was one of the wealthier Brazilians who had money in the bank. And now that inflation was over, he wasn't earning all that interest.

GUERCMAN: I have to admit that I bankrupt in this change and the currency change.

JOFFE-WALT: What happened?

GUERCMAN: Well, suddenly, the money started to have value, and you have to make money from your efficiency and not from your money investment. You had to go back and start producing and competing and having efficiency. I was in the market for more than 20 years when I had to close my factory.

JOFFE-WALT: Isaac Guercman's problems aside, our four heroes literally returned Brazil's economy in the opposite direction with their plan. Brazil was finally able to grow in the way it always should have been all along. The country was able to grow true, competitive industries, huge players in sugar and oil and iron ore. And Cardoso, the finance minister who hired our four heroes, after admitting he knew nothing about economics, he was elected president twice.


UNIDENTIFIED SINGER: (Singing in foreign language).

GOLDSTEIN: That's Chana Joffe-Walt back in 2010. Brazil's economy today in 2015 is not as strong as it was back in 2010, but it is still in much, much better shape than it was 20 years ago.


UNIDENTIFIED SINGER: (Singing in foreign language).

GOLDSTEIN: If you're looking for another podcast, try All Songs Considered. It's a great way to find new music. You can find all songs at, on the NPR One app or wherever you get your podcast. I'm Jacob Goldstein. Thanks for listening.


UNIDENTIFIED SINGER: (Singing in foreign language).

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