Brazil’s military dictatorship, in power since 1964, pursued a different economic model than Chile’s and Argentina’s. Though Brazil’s generals began with liberal reforms, they moved to a nationalist project of increased state control of industry, restrictions on imports, and heavy investments in energy and transportation infrastructure. They initially experienced great success, with annual growth rates averaging 11 percent between 1968 and 1973. This growth depended on cheap imported oil and harsh political repression. When the oil embargo threatened to cripple the country’s accelerating industrialization, the generals borrowed heavily from abroad to subsidize fuel costs and conduct costly alternative energy projects.

The Brazilian cycle of borrowing petrodollars to subsidize oil imports and development projects was ruinous for the country. By the end of the 1970s Brazil had the largest foreign debt in the developing world. When the second oil shock hit in 1979, and as the U.S. government raised interest rates, making Brazil’s debt more expensive to manage, the country entered what became known as a “lost decade” of recession and inflation. In the 1980s the economic crisis set the tone for a transition to democracy: as the generals made painful cuts to public services and as Brazilians faced crippling inflation and recession, people overwhelmingly turned against military rule and supported redemocratization.

As in Chile, Brazil’s transition to democracy was shaped by liberalization. Business groups, which had grown uneasy with the dictatorship’s borrowing and central planning, joined forces with human rights advocates to return the “rule of law,” rather than arbitrary rule by generals. Unlike in Chile, the debt left behind by Brazil’s military leaders drove liberal economic reforms. In order to sustain its debt payments, the Brazilian government accepted the Washington Consensus, reducing public spending and opening the economy to imports and foreign investment. Within this changed climate, in 1994 Brazilians elected Fernando Henrique Cardoso. Cardoso carried out the deepest and most sustained liberal reforms Brazil had seen since the 1930s.