Using the theory of the Second Washington Consensus, based on the opening of the financial accounts and the growth cum foreign savings strategy, this paper explains why even after the Real Plan of 1994, the Brazilian economy remained quasi-stagnant with soaring debts and two balance of payments crises. The paper discusses the conditions under which foreign savings are or are not favorable to growth, and argues that if a country is already indebted externally, and does not count with a cluster of profitable investment projects, capital inflows will just overvalue the exchange rate, increase artificially real wages, and cause increased consumption.

April 10, 2006.