In contrast with the 1998 crisis, when Brazil’s weak fiscal position forced it to adopt IMF’s pro-cyclical austerity package, fiscal policy was counter-cyclical during the 2009 crisis, albeit modestly so.
The first counter-cyclical strategy was to use income policy and social policy to generate multiplier effects. The federal government maintained its commitment to mandatory real wage increases of about 6 percent a year and opted for the extension of the duration of its woefully underproviding unemployment benefits, two measures that are often advocated by neo-developmentalists Similarly, Brasilia enhanced the coverage and benefit levels of cash transfers by injecting $30 billion into the economy and creating 1.3 million jobs (ILO 2011: 5). But while they benefited 20 percent of the population, at the cost of only 0.026 percent of GDP and 2.4 percent of the stimulus package these measures hardly posed any risks to macroeconomic stability.
The second counter-cyclical strategy was a direct fiscal stimulus. Thus, to mop up the unemployment created in the construction sectors, the government used 40 percent of the $20 million stimulus package to boost spending on infrastructure and launch a program to build one million affordable housing units between 2009 and 2010. Also, to slow down job losses in manufacturing, the government cut the industrial production tax (IPI), a measure that saved close to 60,000 jobs in the car industry, a sector known for its impressive multiplier effects. Yet, like the enhancement of social programs, these demand-side measures did not endanger the objective of fiscal stability and, in relative terms, the value of the stimulus was quite small.
But where Brazil made a difference was in using an aggressive off-the-books stimulus package camouflaged as credit policy targeted at employment-rich sectors. This measure was possible only because in violation of the Washington Consensus, the Brazilian government did not privatize federal banks and used them as development banks. Even before the crisis state banks were the main providers of industrial credit in Brazil with private banks keeping most of their operations in government bonds and consumer credit while remaining averse to extending credit to corporates. At $60 billion the lending of the state-owned BNDES now far exceeds that of the World Bank (Studart and Stallings 2006; The Economist, August 5, 2010).
Given this structural characteristic of the financial sector, the Ministry of Finance was able to ask three federal banks (Banco Nacional de Desenvolvimiento Economico e Social or BNDES, Caixa Economica Federal and Banco do Brasil) to keep lending to employment-rich large firms and SMEs at a moment when private banks were weary of lending. To ensure the success of this operation, the Ministry of Finance spent no less than 3.3 per cent of GDP to capitalize BNDES, so that this bank could increase its volume of credit by no less than 85 percent by offering loans to firms at half the level of the yield on government bonds. But because this measure was a below-the-line loan to BNDES, it was not considered as part of the stimulus package (ILO 2011: 48-49).
In addition to these credit lines through state banks, in 2009 the government used public savings to create a sovereign wealth fund with an initial amount of 0.5 percent of GDP which immediately planned the release of almost half of its money to infrastructure investments (ILO 2011: 41). In short, the government used 3.8 percent of GDP in off budget measures to fund carry out counter-cyclical fiscal policy by stealth. Had these measures been on the books, Brazil’s fiscal virtue would have been questioned, as the budget deficit would have been in the red.
 Fewer than seven percent of Brazil’s unemployed received benefits in 2009 (ILO 2011: &).
 According to the Instituto de Pesquisa Economica Aplicada (IPEA), each R$ 1.00 spent on cars has a multiplier effect of R$ 3.76 on aggregate output (cited in ILO 2011:5).
 In sharp contrast to Mexico and Eastern Europe, where deregulation and privatization led to a near complete takeover of domestic banks by foreign banks (Ban 2011; Gabor 2010; Aslund 2010), what Arbix and Martin (2010:14) called “the backbone of Brazilian banking” (Banco do Brasil, Caixa Economica Federal, Banco Central and BNDES) remains state-owned in Brazil. Banco do Brasil and Caixa Econômica Federal are not only the largest and most profitable banks in the country, but are also among the biggest in the world. Also, their reform was carried out so as not to impede the government’s freedom to use them to advance public policy goals such as the provision of long-term project finance, housing and infrastructure finance and development finance (Stallings and Studart 2006).
 The Economist, August 5, 2010.