The construction of monetary authority and democracy: the case of Brazil in the context of economic integration on a global scale

• Grant number: 01/05568-8
• Support Opportunities: Research Projects - Thematic Grants
• Start date: January 01, 2002
• End date: March 31, 2006
• Field of knowledge: Humanities - Political Science - State and Government
• Principal Investigator: Lourdes Sola
• Grantee: Lourdes Sola
• Host Institution: Escola de Administração de Empresas de São Paulo (EAESP). Fundação Getúlio Vargas (FGV). São Paulo , SP, Brazil
• City of the host institution: São Paulo
• Principal investigators: Kurt Eberhart von Mettenheim ; Maria Rita Garcia Loureiro Durand

Abstract

Monetary and financial policy have tremendous consequences in both the economic and political arena. In the economic arena, its impact is most widely recognized in sustaining economic stabilization programs, yet regulatory financial policy also has significant impact over a number of microeconomic issues which impact over the quality of financial services available to consumers, businesses, and governments alike. In the political arena, interest rate policy, Central Bank interventions of financial institutions, and exchange rate policies are all prominent issues pertaining to the public sphere that can make or break political careers. Furthermore, these issues are integral to the construction/reconstruction of new monetary order - a task imposed by the experiences of hyper-inflationary economy. Because hyper-inflation constituted a fundamental break from the previous monetary regime and patterns of state financing, such issues represent a facet of state reform its relationship to society. Despite such relevance, the study of monetary and financial policy has been predominantly conducted by economists, who have focused almost exclusively upon the question of whether the Central Bank is autonomous from the political arena. According to such analysis, an autonomous Central Bank is almost always seen as an integral component to economic stability and integration to a 'globalized' economic community. While research conducted by economists has proven extremely valuable, our project begins critically from the premise it is limited in its scope of analysis.Through adopting a political science approach to the study of monetary authority - which refers to the set of institutions which govern monetary and financial policy - our project goes beyond the question of Central Bank autonomy. A primary concern of our project is to examine how the politics of monetary authority in Brazil has been able to reconcile two distinct political dynamics: on the one hand the logic of democratic consolidation which is inherently decentralizing, especially in a federal context, and on the other hand the logic of economic stabilization which requires a centralization of powers in the hands of monetary authorities. Not only will such a focus shed light upon an important empirical phenomena which is rarely studied by political scientists, but it will also shed light upon a broader, and fundamental, dilemma within democratic theory which concerns the relationship between independent regulatory agencies (such as the judiciary) and democratic governance. Our approach should therefore highlight questions pertaining to mechanisms of political control and democratic accountability within both monetary and fiscal spheres. In order to study the politics of monetary authority from a political science perspective, we examine the case of Brazil (1988-2000). By doing so not only will the analysis capture a pivotal moment in Brazil's transition to a consolidated democracy (1988), but also the set of reforms surrounding the Real economic stabilization program (1994-2000). The tension between a concentration of powers in the hands of monetary authorities, and that of democratic consolidation, however, is a multifaceted analytic question which requires an multidisciplinary approach. As a result, such relationship will be examined through four working groups which respectively focus upon: the relationship between monetary authorities and the private financial sector, monetary authorities and political institutions which constitute the separation of powers (the legislature, executive, and federal relations), fiscal policy and monetary authorities, and the impact of international factors within the construction of monetary authority. All four research groups will further coordinate toward creating a consolidated data base which can become a resource for future researchers. (AU)