The Real Plan: A Model for South America Economic Repair?

April 7, 2025

Editor(s): Alec Drake

Writer(s): Tony Xie, Sammi Lam, Aadhya Singh

For decades, many South American nations have grappled with fiscal instability, breeding broader political and social disarray. Emblematic of this disorder, Venezuela and Argentina, countries rich in natural resources, have long struggled with economic mismanagement as their governments have pursued damaging populist policies. Whilst politically expedient, these policies have spurred high inflation in recent years peaking near 63,000% and 300% for Venezuela and Argentina respectively, and heralded a precipitous fall in living standards.

In response, Argentinian president and political firebrand Javier Milei, has sought a radical reset, taking a chainsaw to bureaucracy and restructuring the wider economy. Despite the alluring appeal of such drastic action, has an safe and effective alternative been hidden in plain sight in Brazil’s 30 year-old Real Plan?

Brazilian Hyperinflation Experiences

By the early 1990s, Brazil’s economy was in disarray, gripped by hyperinflation. Prices raced ahead so quickly that in 1993 annualised inflation peaked above 6,800%. Shopkeepers re-stickered tags multiple times a day and families spent their paychecks immediately before the money became worthless. 

This chaos stemmed from years of monetized fiscal deficits, ingrained inflationary inertia, and a crippling external debt overhang. It also followed a string of failed stabilisation schemes in the late 1980s and early 1990s – Plans Cruzado, Bresser, Verão, and Collor – each of which ultimately faltered due to a lack of fiscal discipline and an overreliance on short-lived price freezes or currency gimmicks.

Figure 1: Rapid price adjustment at the height of Brazilian hyperinflation

Similarities to Venezuela & Argentinian Turmoil

Brazil’s crisis in the early 1990s mirrors the turmoil that has engulfed Venezuela and Argentina in more recent years. In all three cases, governments repeatedly turned to money printing to finance deficits while neglecting to address deep-seated structural imbalances. As inflation soared, citizens were left scrambling to protect their wages and savings from a depreciating currency – with Argentinians and Venezuelans having been forced to do amid price surges of up to triple and five-digit inflation, respectively. In each instance, a mixture of political unrest, policy mismanagement, and weak institutional checks further eroded confidence, underscoring fiscal imprudence ability to swiftly collapse broader stability across South America.

The Real Plan 

The Real Plan involved multiple sequential phases, aiming to ensure a smooth transition maintaining public support.  A critical initial stage in the plan was the introduction of Unidade Real De Valor (URV) which acted as a virtual currency. Rather than a new currency,  the URV was instead a temporary replacement unit that helped in stabilising price expectations within Brazil until the Real (BRL) was launched.

Further, despite inflation being over 2000% annually in 1993, the government, informed by the efforts of  Fernando Henrique Cardoso, who served as the Finance Minister from 1993 to 1994, employed strict monetary policies and fiscal strategies. Over the years, public spending was controlled to prevent resurgence of inflation and further helped gain confidence in the currency. Key here was the consistent application, succeeding where other plans failed, by maintaining broad political and popular support.

Strategy for Stability 

The Real Plan relied on a balanced approach to sustain over a period. Monetary controls and innovative ideas like the URV were executed for price stabilisation with a long-term outlook. These policies were a mix of conventional and new approaches and hence balanced out the entire plan.

Figure 2: Effectiveness of Real Plan compared to prior policies

Further the central bank contributed to managing currency stability to ensure smooth thus transition. By implementing tight monetary policies, including heightened interest rates, the central bank effectively curbed inflationary pressures, while simultaneously managing exchange rate stability allowing the fledgling currency to build credibility. This intervention was vital in maintaining public confidence in the Real, enabling a smoother transition to a stable economic framework. 

Lasting Impact and Challenges

The Real Plan was successful in something which seemed impossible. Inflation in the country was reduced to single digits. Brazil’s self-stabilized economy attracted foreign investment and set the foundation for further economic growth.

However, the plan faced several challenges along its path to success. The controlled monetary policies realised significant short term unemployment and ultimately was insufficient in defending its exchange rate’s crawling peg, whose collapse in 1999 spurred by earlier international contagion events, imperilled the Real Plan’s progress. Notably, this cautionary caveat to the Real Plan reinforces the need to maintain wholistic fiscal order, with no measures being a silver bullet to resolve widespread economic mismanagement. Moreover, the government’s focus on inflation control sometimes came at the cost of public investment, slowing down improvements in infrastructure and social programs. Economic inequality remained a pressing issue, as lower-income groups struggled to benefit from the immediate effects of stabilization.

Figure 3: Long-term success of the Real Plan in inflation management

More than 30 years after the Real Plan was introduced, hyperinflation is now a thing of the past. The plan’s success in directly bringing down inflation is undeniable with inflation figures falling from 2,477% in 1993 before the plan to 22.4% in 1995. This low inflation has been maintained to date with annual average inflation hanging between 4% and 5%. 

The Brazilian economy now enjoys price stability and improvement of social welfare, the income distribution has improved and been associated with a sharp decline in poverty. Thus, the Real Plan has demonstrated its efficacy in tackling both persistent inflation alongside , enabling sustainable economic growth and improvement to social betterment.

Is the Real Plan a Solution for Other Nations?

There are many factors and conditions that made the Real Plan successful which should be considered for application in other countries struggling with inflation. Critically, the Real Plan’s implementation required unanimous parliamentary and comprehensive societal support.

Argentina

As one of the many countries caught in the quagmire of high inflation, Argentina clearly requires economic rehabilitation. However, despite having experienced high inflation similarly to Brazil Argentina, the underlying causes faced by Argentina differ substantially. Specifically, Argentina must also address its economic inefficiency and untenable structural budget, borne from continued protectionist policies. Thus, whilst the Real Plan might not be copied verbatim, there are key insights that could be applied to Argentina’s reform, particularly in stabilising the rapid decline of the Pesos

Pointedly, introducing a new currency remains an unorthodox approach, but experiences from the Real Plan, in particular with breaking inflationary inertia and tackling the issue of prices becoming outdated so often display the potential benefits. By linking the Unidade Real de Valor with the US dollar, the relative price-setting problem, forcing firms to constantly readjust prices, would cease to exist, with the incentives for price setting changes being removed. Further, with the Pesos having experienced significant declines against the greenback, falling from 48 Pesos per dollar in 2019 to over 1000 today, it help restore confidence in Argentina and facilitate a growth in the export of its rich natural wealth.

Further, an oft undervalued factor of Brazil’s success, is its efficacy in maintaining broad support through increased transparency. Argentina should follow in these footsteps by extolling transparency, within both its bureaucratic and democratic institutions to ensure continued support and participation of congress and wider society. Experiences with the Real Plan confirm that long-term success relies on comprehensive societal support and understanding, allowing the plan’s effects to be realised.

Venezuela

Likewise, Venezuela’s experience with runaway hyperinflation – once reaching annual rates in the thousands of percent – illustrates the critical need for credible reforms. However, the political and economic landscape in Venezuela differs substantially from Brazil in the 1990s. Implementing a system akin to Brazil’s URV would demand sweeping consensus, institutional restructuring, and transparent fiscal discipline – factors currently hindered by entrenched political divisions and limited rule of law in Venezuela. Nonetheless, the central lesson of the Real Plan – combining strict monetary controls with broad-based political and public support – remains highly relevant. Without genuine buy-in from all stakeholders and mechanisms to ensure accountability in policy execution, quick fixes such as currency redenomination or price freezes are likely to fail.

Figure 4: Venezuelan social unrest and distrust of Maduro government

Lessons from the Real Plan suggest that successful stabilization will require a clear legal framework, an independent monetary authority, and transparent communication with citizens – elements that, if embraced, could help Venezuela inch toward recovery. Thus, whilst the Real Plan presents a viable pathway for Venezuela, there are considerable preconditions to simply adopting it.

Conclusion

The Real Plan heralded successful economic stabilisation in Brazil, the country effectively pulling itself out of the pit of high inflation and evolving the state of the economy and financial landscape. The program was a groundbreaking achievement in modernising Brazil, ending the inflationary spiral and allowing the country to take a major step in growth and stability for its people. 

Whilst many of the Real Plan’s underlying tenets, including the need for broad political and social commitment, enduring changes and fiscal responsibility are applicable to Venezuela and Argentina’s situation, complete replication of the Real Plan would be difficult. Impediments to its adoption are the absence of resilient and respected institutions (for Venezuela) and lack of engrained hyperinflationary mindsets (for Argentina).

References