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The Economy |
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Historical Perspective
MERCOSUL
Statistical Overview
Historical
Perspective
Brazil's
economic history is marked by a succession of cycles,
each of them based on the exploitation of a single export
commodity: timber (brazilwood) in the first years of
colonization; sugar cane in the 16th and 17th centuries;
precious metals (gold and silver) and gems (diamonds
and emeralds) in the 18th century; and finally, after
a series of inland expeditions, coffee in the 19th and
beginning of the 20th centuries. Slave labor was used
for production, a situation that would continue until
the last quarter of the 19th century. Paralleling these
cycles, small scale agriculture and cattle tailing were
developed for local consumption.
Small
factories, basically textile factories, started to pop
up in the mid 19th century. Under Emperor Pedro II new
technologies were introduced, the fledgling industrial
base was enlarged, and modern financial practices were
adopted. With the collapse of the slave economy (it
was cheaper to pay wages to new immigrants than to maintain
slaves), the abolition of slavery in 1888, and the replacement
of the monarchy by the republican regime in 1889, Brazil's
economy suffered severe disruption. The endeavors by
the first republican governments to stabilize the financial
environment and revitalize production had barely succeeded
when the worldwide effects of the 1929 depression forced
the country into new readjustments.
A
first surge of industrialization took place during the
years of World War I, but it was only from the 1930's
onwards that Brazil reached a level of modern economic
behavior. In the 1940's, the first steel factory was
built in the state of Rio de Janeiro at Volta Redonda
with US Eximbank financing.
The
industrialization process from the 1950's to the 1970's
led to the expansion of important sectors of the economy
such as the automobile industry, petrochemicals, all
steel, as well as to the initiation and completion of
large infrastructure projects. In the decades after
World War II, the annual Gross National Product (GNP
growth rate for :Brazil was among the highest in the
world averaging, until 1974, 7.4 percent.
During
the 1970's Brazil, like many other countries in Latin
America, absorbed excessive liquidity from U.S., European,
and Japanese banks. Huge capital inflows were directed
to infrastructure investments and state enterprises
were formed in areas that were not attractive for private
investment. The result of this capital infusion was
impressive: Brazil's Gross Domestic Product (GDP) increased
at an average rate of 8. percent per annum from 1970
to 1980 despite the impact of the 1970's world oil crisis.
Per capita income rose fourfold during the decade, to
US $2,200 in 1980.
In
the early 1980's. however, a sudden, substantial increase
in interest rates in the world economy coinciding with
lower commodity prices precipitated Latin America's
debt crisis. Brazil was forced into strict economic
adjustment which brought about negative growth rates.
The unexpected suspension of capital inflows reduced
Brazil's capacity to invest. The burden of its debt
affected public finances and contributed to an acceleration
of inflation. In 1987, the government suspended Brazilian
interest payments on foreign commercial debt.
The
1980's crisis signaled the exhaustion of Brazil's import
substitution" model and it contributed to the opening
up of the country's economy. ("import substitution"
is a policy that nurtures local industry by prohibiting
the purchase of certain manufactures abroad.) In the
early 1990's, Brazil's economic policies were centered
on economic stabilization, opening up the economy to
international trade and investment, and normalizing
relations with the international financial community.
The latter two were quickly achieved: Import tariffs
were reduced (the average is now 12 percent), and quantitative
restrictions were eliminated, making Brazil one of the
very few countries in the world that does not impose
quotas on its imports. In 1992, Brazil reached an agreement
with both public and commercial creditors to reschedule
its foreign debt payments, exchanging old debt for new
bonds. This rescheduling marked Brazil's return to the
international financial markets. The turning point in
the stabilization process came with the launching of
the Real Plan in June 1994. (Brazil's new unit of currency
is the Real, pronounced ree-ál.)
The
Real Plan has three main objectives: (1) keeping inflation
under control; (2) obtaining a steady and substantial
reduction of social imbalances; and (3) achieving long-term
sustainable growth of GDP, investment, employment and
productivity. In 1998, price increases have been the
lower in four decades, around 2 percent, down from more
than 2,100 percent in 1993 before the launching of the
Plan. Since inflation constitutes a form of tax on the
poor, price stabilization represented a significant
redistribution of income in favor of the most needy.
In the period 1995-97 cumulative GDP growth was 17 percent,
na average of 4 percent per year, while per capita income
average growth was 2.6 percent. The increase of industrial
productivity, which has averaged 7 percent a year in
the 1990’s, is very important to ensure sustained
growth in the future. Since the implementation of the
Plan, net flows of direct foreign investment have jumped
tem-fold, from US $2.2 billion in 1994 to over US $22
billion in 1998.
With
a GDP of US $800 billion in 1997, the Brazilian economy
is dynamic and diversified. In 1997 industry was responsible
for 36 percent of economic output, agriculture for 14
percent, and services accounted for 50 percent. The
performance of exports, among other areas, reflects
the dynamism of the country’s economy. From 1992
to 1997 Brazilian exports have increased from US $35.7
billion to US $53 billion. Over 70 percent of these
exports are manufactured goods. The European Union absorbs
31 percent of Brazilian exports, the United States 20
percent, the Southern Commom Market (MERCOSUL) 10 percent,
Asia absorbs 12 percent, Latin America (non-MERCOSUL)
10 percent, and the remaining exports are distributed
over a variety of smaller markets.
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MERCOSUL
On
March 26, 1991, the Southern Common Market (MERCOSUL)
was created when Brazil, Argentina, Paraguay, and Uruguay
signed the Treaty of Asunción. The trade pact
took effect as a customs union and partial free-trade
zone on January 1, 1995.The aim of MERCOSUL is to allow
for the free movement of capital, labor, and services
among the four countries. Since 1991, trade among the
MERCOSUL countries has more than tripled. Brazil’s
trade with the MERCOSUL countries reached US $18.7 billion
in 1997, up from US $3.6 billion in 1990.
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Statistical
Overview
During
the last fifty years, the distribution of the Brazilian
population by age groups has shifted. The fraction under
14 years of age has fallen from 43 percent to 31 percent,
while the fraction over 60 years of age has risen from
four percent to 7.3 percent. Life expectancy at birth
has increased rom 46 years in 1950 to 67 years. The
literacy rate was 50 percent in 1950. Today it is 84
percent.The Brazilian workforce totaled an estimated
72 million, or 46 percent of the population in 1996.Overall,
the workforce expanded at an average annual rate of
3.2 percent during the 1980’s. Currently the workforce
is expanding at a rate roughly equal to the population
growth rate. Women account for 35 percent of the total
Brazilian workforce, up from 28 percent in 1980.
The
basic sanitation system in Brazil has improved substantially
in the past 25 years. In 1995, 73 percent of households
were served by a sewage system of some kind; 96 percent
of households had potable water and 88 percent of all
households were connected to the electric power grid.
There are approximately one installed telephone and
one automobile for every ten Brazilians. Production
and sales of home appliances and consumer electronics
increased significantly between 1994 and 1996, with
growth averaging about 20 percent per year. In 1996
sales were up 81 percent compared to 1993. This extraordinary
performance is attributed to increased disposable income
and to wider consumer credit availability – factors
that resulted from the implementation of the Real Plan.
For the first time low-income families became consumers
of color televisions and electrical appliances. By 1997,
however, the cycle of growth in home appliances had
run its course and the industry is expected to expand
far more slowly in the coming years.
Going
into the 21st century, Brazil is the eighth largest
economy in the world.
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