Still Not Fully Free

Mar 3, 2004

The Central Bank of Brazil is the result of a typically Brazilian compromise. It is a quasi-independent department of the Finance Ministry, which means that ultimately it is under political control. Yet it has won ? and exercises ? a wide degree of independence over policy and staffing. Incoming governments exercise their right to appoint a new Central Bank president as part of the spoils system, and often vet the board members as well. President Luiz Inácio Lula da Silva was no exception and replaced Armínio Fraga, a brilliant academic economist and financier, with Henrique Meirelles, a former top executive at FleetBoston.

Meirelles had no experience as a central banker, was a political neophyte and a deputy from the opposition PSDB. But he has steered the Central Bank along the same rigorously independent path as his predecessor and retained several board members from the previous administration. He...

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