Evolving monetary orders: the evolution of public financial institutions in Brazil and Mexico

This thesis examines the evolution of economic orders in Brazil and Mexico, focusing on the role of Public Financial Institutions. It demonstrates how Development Banks and Central Banks have been intricately involved in the process of reforming and stabilizing two distinct economic orders: the developmentalist and the neoliberal. The analysis covers three periods: the developmentalist era, the neoliberal reform period beginning in the 1980s, and the post-2008 era. The study reveals that after 2008, these countries diverged in their economic paths due to differences in their neoliberal reforms. In Brazil, strong institutional memories of developmentalism facilitated a recollection of developmentalist practices, a phenomenon not observed in Mexico. The neoliberal period in Brazil and Mexico is analyzed using a most-different cases research design, explaining their unexpected convergence towards neoliberal practices. The case of Brazil is particularly intriguing, as it could have followed Argentina's path but instead aligned with Mexico, adopting strict monetary practices such as inflation targeting. This comparison between Brazil and Mexico allows for the identification of variables sufficient for convergence despite significant dissimilarities. Both countries implemented reforms in the 1990s to engage stably with the international financial system. However, their convergence mechanisms differed: in Mexico, the old economic order was displaced, while in Brazil, developmentalist institutions had its goals converted to neoliberal ones. Crucially, Mexico's erasure of former rules and practices precluded the recollection of developmentalist practices in subsequent periods. The adoption of inflation targeting in 1999 (Brazil) and 2001 (Mexico) marks the pinnacle of neoliberal convergence. Inflation targeting serves as an anchoring practice, guiding other practices such as exchange rate management, fiscal policy, and financial development. The 2008 global financial crisis provided an opportunity for emerging countries to reconsider developmentalist practices, as it challenged the legitimacy of the established order. Although the transformations in advanced economies fell short of expectations, the crisis significantly contested the background knowledge underpinning the monetary order. This contestation enabled further challenges in emerging countries, particularly in Brazil, where developmentalist practices remained accessible within large public banks and academic circles in federal universities. Consequently, Brazil's public banks, once the primary institutions of the developmentalist order, were repurposed as key policy tools for sustaining investment. In contrast, Mexico further entrenched its price stability monetary order, pursuing greater financial integration with the United States. This thesis proposes that the divergent policy responses to the 2008 crisis can be explained by the different paths these countries took in converging on inflation targeting during the 1990s. While Brazil attempted to recollect developmentalist practices post-2008, Mexico further committed to price stability practices, highlighting the long-term impacts of their respective neoliberal reform strategies.