Brazilian Economy

.. mption, although this will lag behind the other drivers of growth. Industrial production grew in February for the fifth time in seven months, the first time Brazil has posted such a broad expansion since late 1997 (LaitnFocus) Public debt growth accelerated after mid-1995 due to the need to stabilize short-term capital inflows drawn by high domestic interest rates. This policy together with the need to extend central bank credit to the financial sector to help troubled banks has also led to a growing quasi-fiscal deficit. The Real’s value has held well below its weakest point early in 1999 (around R2: $1), ending 1999 at R1.79: $1. Although debt repayments are forecast to be higher in the second half of the year, overall trends in the balance of payments, including healthy foreign investment inflows, should strengthen the Real further.

We forecast a year-end exchange rate of around R1.71: $1(World Bank Group). CONCLUSION The economic experience of the 1980s served as a contribution to Brazil. Government is much less likely to be seen as a solution, and many more Brazilians see the public sector as the problem. The somewhat tiresome debate between the monetarists and the structuralists that dominated discussions of inflation in the 1970s has been superseded by recognition that more supply growth does have a close relation to inflation, but that the essential problem is the fiscal deficit that drives the money supply process. The external shocks of the 1980s have also shown Brazilians that their country cannot be isolated from the rest of the world.

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By the early 1990s, Brazil was on the path to becoming more open to trade than it had been for several decades. Despite the loss of Brazilians access to world capital markets in the early 1980s, external capital was beginning to return to Brazil by the early 1990s. Brazilians also learned that price stabilization is not easy and that”magic” solutions centered on price freezes do not work without the more difficult fiscal adjustments that appear from a political agreement. That the early 1990s had not created general agreement, even though political leaders and economists admitted that fiscal adjustment was necessary for macroeconomics stability. The failure of successive stabilization plans that ignored the underlying fiscal disequilibrium also forced long-term costs, because the credibility of government economics policies was hurt.

The fall of Collor de Mello government in 1992 under changes of enormous corruption and the economically unrealistic terms of the 1988 constitution have made the job of recovering government credibility even harder (Stephan 210). For Brazil to return to the kind of economic growth that many of its people once considered as their birthright, a lot of changes must take place. First, the public sector deficit must be lessen significantly. This can be done in a variety of ways without putting heavy costs in Brazilian society. Privatization of economically inefficient state companies is one way, and in the first half of the 1990s some progress was made in that area. The complex system of tax and credit subsidies that was created in past decades suggests many opportunities for some sort of reform, which would also lower the fiscal deficit. Secondly, Brazil recent moves toward becoming a more open economy offer the hope that it can achieve some sort of economic efficiency and make sure that its resources flow into certain areas where Brazil has a strong international position. Also, cease the protection of certain sectors that have only cost the Brazilian consumers.

Opening their market to the world will contribute to the economic welfare of the country. Finally, Brazil can be become an economically prosperous country if it can address the inequalities of the distribution of income. To help the ones who are not privileged, the country must focus on education and provide other basic services to this class. Without great efforts to try to even out this problem, the government may find it harder to govern and may reduce the hopes for successful and sustainable price stabilization, because of their fiscal disequilibrium (Tulchin 90-100). Brazil, Economic Indicators, 1995 2000 1995 1996 1997 1998 1999 2000 Real Sector GDP (real annual %-change) 4.2 2.7 3.6 -0.1 0.8 3.1 Q1 2000 Industry (real annual %-change) 1.8 1.7 3.9 -2.1 -0.7 6.7 Apr-00 Unemployment (%) 4.7 5.5 5.7 7.7 7.6 7.8 Apr-00 Fiscal Balance (% of GDP) -4.9 -3.8 -4.3 -7.6 -5.6 – 1999 Monetary Sector Money (annual variation of M1 in %) 25.1 4.6 58.9 7.1 22.7 16.5 Apr-00 Money (annual variation of M3 in %) 45.4 39.8 25.5 20.0 27.6 29.0 Apr-00 Inflation (CPI, annual variation in %) 22.0 9.1 4.3 2.5 8.4 5.4 Apr-00 Inflation (PPI, annual variation in %) 6.4 8.1 7.8 0.6 28.9 17.0 Apr-00 Interest Rate (SELIC rate in %) 38.9 23.9 42.0 31.2 19.0 18.5 May-00 Markets Stock Market (ytd in US$-terms in %) – 31.6 20.2 -43.0 66.9 -11.4 31-May-00 Stock Market (Bovespa ytd in %) -1.3 63.8 44.8 -33.5 151.9 -12.5 31-May-00 Bond Market (EMBI Plus var. in %) 21.2 34.6 12.6 -15.4 40.7 -0.3 31-May-00 Bond Market (C-Bond over UST) – 531 539 1,124 640 785 31-May-00 External Sector Exchange Rate (Real/US$) 0.973 1.039 1.116 1.208 1.789 1.827 May-00 Balance of Payments (US$ m) 13,480 9,017 -7,845 -17,285 -10,759 -10,194 Apr-00 Current Account Balance (US$ m) -17,972 -23,136 -30,916 -33,611 -24,375 -3,078 Apr-00 Trade Balance (US$ m) -3,466 -5,554 -6,757 -6,593 -1,206 -133 May-00 Exports (US$ m) 46,506 47,747 52,990 51,140 48,011 51,165 May-00 Imports (US$ m) 49,972 53,301 59,747 57,733 49,218 51,298 May-00 Int.

Reserves (US$ m) 51,840 60,110 52,173 44,556 36,342 28,581 May-00 Int. Reserves (months of imports) 12.4 13.5 10.5 9.3 8.9 7.0 May-00 External Debt (US$ m) 159,398 180,003 193,698 235,082 236,945 242,511 Mar-00 Ratings Sov. Moody’s – – – B2 B2 B2 31-May-00 Sov. S & P – – – BB- B+ B+ 31-May-00 Sov. Fitch – – – B+ B B 31-May-00 Sov. DCR – – – BB- BB- BB- 31-May-00 Copyright LatinFocus 2000 Last updated on 06 June 2000 Bibliography Page, Joseph A.

The Brazilians. New York, NY: Addison Wesley Longman Inc., 1996. Levine, Robert M., and John J. Crocitti. The Brazil Reader: History, Culture, Politics. Durham, NC: Duke University Press, 1999. Becker, Bertha K., and Claudio A.G.

Egler. Brazil: A New Regional Power in the World Economy. Cambridge: Cambridge University Press, 1992. Tulchin, Joseph S., and Warner Baer. Brazil and the Challenge of Economic Reform. Washington, D.C.: Woodrow Wilson Center Press, 1997. DuQuette, Michel.

Building New Democracies: Economic and Social Reform in Brazil, Chile, and Mexico. Toronto, Canada: University of Toronto Press, 1999. Stephan, Alfred C. Authoritarian Brazil: Origins, Policies, and Future. New Haven, CT: Yale University Press, 1993. “LatinFocus.” Brazil Homepage: Economic Indicators, Forecasts, Briefing, Calendar, and the Most Essential Links to Government.

2000 Online. Internet. Available .htm “World Bank Group.” Brazil. 2000 Online. Internet. Available


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