The prescription, therefore, did not assure a smooth path to the return of growth. In order to grow again, it was necessary to lure foreign funds, but at the same time not expose oneself to the most fickle and volatile capital flows – what these days is called “hot money.” Easy to say; but in practice, it was very difficult to separate the wheat from the chaff. When the situation deteriorated to the point that foreign loans were necessary to cover balance-of-payment deficits, the situation often turned lethal.
What did those of us who ran these countries ask of the international community during these difficult times? We requested more and better international regulation in order to limit speculation against our currencies, the creation of funds that were bigger and more easily accessed, and for the IMF to be strengthened and simultaneously adjust its policies in favor of countries with liquidity crises.
To finance these funds, some of us returned to the idea of a Tobin tax, a levy on conversions of one currency to another. Finally, we argued that if budget austerity exceeded a certain limit, it would kill any hopes of a return to growth – not to mention make the sociopolitical situation in our countries unsustainable. Nobody listened to us, despite our continued requests. Countries that were in no condition to negotiate better terms with the IMF generally suffered through a long period without growth, with continued inability to pay their debts, and with social unrest.
Some emerging countries fared better. Such was the case with Brazil, which of its own accord – and at its own risk – launched the Real Plan in 1994 to create a new currency and make several other structural changes to our economy. We drastically modified the bases of our fiscal policy, cleaning up finances at both the federal and state level, and imposed severe regulations on the financial system that were then monitored by our central bank, in line with Basel guidelines [as laid out by the Basel Committee on Banking Supervision – a committee established by the Group of Ten countries in 1975].