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Economic Outlook of Brazil

 
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Brazil's Economic Outlook



Brazil entered the 1990s with much less confidence about its economic future than it once had. The economic stagnation and uncertainty of the 1980s had exacted a high toll, and per capita income in 1990 was no higher than it was in 1980. Inflation, at monthly rates, was over 30 percent, unprecedented even by Brazilian standards. It is reasonable therefore to ask what has been learned from the experience of the 1980s and what are the prospects for an economic future brighter than the recent past.

As an object lesson, the economic experience of the 1980s made a contribution. Government is much less likely to be seen as a solution, and many more Brazilians see the public sector as the problem. The rather tiresome debate between the monetarists and the structuralists that dominated discussions of inflation in the1970s has been superseded by a recognition that money supply growth does indeed have a close relation to inflation, but that the underlying problem is the fiscal deficit that drives the money supply process. Although the monetization of deficits may be postponed, as was sometimes done in the 1980s, the inflationary consequences of public-sector financial imbalance cannot be avoided indefinitely. A part of the economic disorder of the 1980s was the consequence of populist attempts to ignore this point.

The external shocks of the 1980s have also shown Brazilians that their country cannot be isolated from the rest of the world. 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 Brazilian access to world capital markets in the early 1980s, external capital was beginning to return to Brazil by the early 1990s. In contrast to the massive capital flows of the 1970s, much of which financed public borrowing, capital flows in the 1990s focused more on the private sector.

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 emerge from a political consensus. That consensus had not been developed by the early 1990s, even though political leaders and economists recognized that fiscal adjustment was essential for macroeconomic stability. The failure of successive stabilization plans that ignored the underlying fiscal disequilibrium also imposed long-term costs, because the credibility of government economic policies was undermined. The fall of the Collor de Mello government in 1992 under charges of massive corruption and the economically unrealistic provisions of the 1988 constitution have made the task of regaining government credibility even more difficult.

For Brazil to return to the kind of economic growth that many of its people once regarded as their birthright, a number of changes must occur. First, the public-sector deficit must be reduced substantially. This can be done in a number of ways without imposing heavy costs on Brazilian society. Privatization of economically inefficient state enterprises is one way, and in the first half of the 1990s some progress was made in this area. The complex system of tax and credit subsidies that was developed in preceding decades offers many opportunities for efficiency-improving reform, which would also contribute substantially to reduction of the fiscal deficit.

Second, Brazil's recent moves toward becoming a more open economy offer the prospect of increasing economic efficiency and ensuring that new resources flow into activities in which Brazil has a strong international competitive position. Decades of protectionism in a number of key sectors have imposed high costs on Brazilian consumers. Greater openness to world markets, either through regional trade initiatives or through unilateral reductions in trade restrictions, will make a noticeable contribution to Brazilian economic welfare.

Finally, Brazil could become an economically prosperous country if it can seriously address the enormous inequities in income distribution. Serious efforts to help Brazil's least privileged must focus on the provision of basic services and, above all, on education. Without substantial efforts to address the income distribution problem, the strains on the political system that have their economic counterpart in fiscal disequilibrium may make the country much harder to govern and may reduce the prospects for a successful and sustainable price stabilization.

* * *
A highly regarded analysis of the Brazilian economy's formulation from the early colonial period to the breakdown of the coffee economy in the 1930s is in Celso Furtado's The Economic Growth of Brazil . A succession of external shocks, failed stabilization plans, and significant changes in trade policy in the 1980s and early 1990s provided the raw material for literature on recent Brazilian economic problems. A classical treatment of the 1980s is Werner Baer's The Brazilian Economy--Its Growth and Development , the fourth edition of which was published in 1995. Some of the difficulties in the transition from a primary product economy to an important industrial power are examined in Edmar L. Bacha and Herbert S. Klein's Social Change in Brazil, 1945-1985 . A parallel treatment of some of these problems in Brazilian economic development is given in Luiz Carlos Bresser Pereira's Development and Crisis in Brazil, 1930-1983 .

Brazil's economic response to the external debt crisis of the early 1980s is the subject of various studies, several of them parts of larger studies on a number of developing nations. One is Eliana A. Cardoso and Albert Fishlow's The Macroeconomics of the Brazilian External Debt . Donald V. Coes's Macroeconomic Crises, Policies, and Growth in Brazil, 1964-90 provides a detailed macroeconomic history of post-1964 policies and their consequences. An earlier treatment on Brazil's experience is James Dinsmoor's Brazil: Responses to the Debt Crisis . A former minister of finance, Marcílio Marques Moreira, provides an insider's view of the external debt problem in The Brazilian Quandary .

William G. Tyler's Manufactured Export Expansion and Industrialization in Brazil and Werner Baer's Industrialization and Economic Development in Brazil examine a number of the causes and consequences of import-substitution industrialization. A World Bank-sponsored study by Coes, Liberalizing Foreign Trade: Brazil, e xamines Brazil's trade policies between 1964 and the early 1980s. Changes in Brazil's capital markets in this period are the subject of John H. Welch's Capital Markets in the Development Process . Samuel A. Morley examines Brazilian labor markets and income distribution in Labor Markets and Inequitable Growth: The Case of Authoritarian Capitalism in Brazil . Thomas J. Trebat studies the role of state enterprises in Brazil's State-Owned Enterprises .

Among the useful sources on the Brazilian economy and its development that are available only in Portuguese are A ordem do progesso , edited by Marcelo de Paira Abreu. Numerous works in Portuguese discuss Brazilian inflation and the various attempts to deal with it. Ignácio Rangel's A inflação brasileira is a classic work. Contemporary treatments of stabilization attempts include Plano Cruzado by Fernando de Holanda and Mario Henrique Simonsen, the latter a former finance minister.

Data on the Brazilian economy are available from a number of sources, including various Brazilian economic journals, many of high quality. Revista Brasileira de Economia , edited by the Fundação Getúlio Vargas in Rio de Janeiro, is Brazil's oldest and perhaps most conservative economic journal. Estudos Econômicos , edited by the Economic School of the University of São Paulo, is an eclectic journal. Pesquisa e Planejamento Econômico , which emphasizes academic articles dealing with current problems of the Brazilian economy, is published by the National Research Institute (Instituto Nacional de Pesquisa--INPES) and the Applied Economic Research Institute (Instituto de Pesquisa Econômica Aplicada--IPEA), a semi-independent research organization of the Ministry of Planning, based in Rio de Janeiro. Revista de Economia Política is a critical but widely respected economic journal edited by the Center for Political Economy of São Paulo. An interesting economic journalism magazine is the monthly Conjuntura Econômica , published by the Fundação Getúlio Vargas. It presents short articles on trends in the Brazilian economy and has a rich statistical compendium.

A long view is provided in Estatísticas históricas do Brasil: Séries econômicas, demográficas e sociais, 1550 a 1988 , published by the Brazilian Institute of Geography and Statistics (Fundação Instituto Brasileiro de Geografia e Estatística--IBGE). The IBGE yearbook, Anuário estatístico do Brasil , provides a wealth of data on all aspects of the economy, albeit with a lag of several years. The Boletim do Banco Central is a valuable source of macroeconomic and financial data. A rich source of studies on the Brazilian economy is in a series of publications by INPES-IPEA called Perspectivas da economia brasileira . Dealing with virtually all aspects of the Brazilian economy, the volumes, issued at two- to three-year intervals, not only review recent events but also perform projections for the near future. Among the sources available in English are the periodic studies published by the British Economist Intelligence Unit and the statistical series by the IMF published for all member countries. The World Bank provides a number of summary statistics in its annual World Development Report and is also the source of a wealth of more detailed statistical information, both published and unpublished, on contemporary Brazil. (For further information and complete citations, see Bibliography.)

Data as of April 1997




 



 

 


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Historical Setting

The Society and Its Environment

The Economy

Historical Background and Economic Growth

- The Colonial Period
The Sugar Cycle, 1540-1640
The Eighteenth-Century Gold Rush

- The Economy at Independence, 1822
- The Coffee Economy, 1840-1930
- A Period of Sweeping Change, 1930-45
- Import-Substitution Industrialization, 1945-64
- Stagnation and Spectacular Growth, 1962-80
Stagnation, 1962-67
Spectacular Growth, 1968-73

Growth with Debt, 1974-80

- Stagnation, Inflation, and Crisis, 1981-94
The 1981-84 Period
The 1985-89 Period

The 1990-94 Period

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Fiscal and Monetary Policy, the Public Sector, and Inflation
- Fiscal Trends in the 1980s
- Pressures on Public-Sector Expenditures in the 1980s
- Fiscal Deficits and Inflation
Brazil's Real Plan
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