Brazil - Stagnation and Spectacular Growth, 1962-80
As a result of the problems associated with import-substitution
industrialization and the reforms introduced by the military regime
after March 1964, the Brazilian economy lost much of its dynamism
between 1962 and 1967. The average rate of growth of GDP in the
period declined to 4.0 percent and that of industry to 3.9 percent.
In part, stagnation resulted from distortions caused by the strategy.
Moreover, political troubles negatively affected expectations and
precluded the formation of a coalition to back the introduction
of tough measures to control inflation and the balance of payments
crisis. Political troubles also hindered the removal of obstacles
The 1964 coup dealt with the political obstacles by forcefully
restraining opposition to the military agenda of change. With the
objective of transforming Brazil into a modern capitalist economy
and a military
power, the regime implemented a series of reforms aimed at reducing
inflation, at removing some of the distortions of import-substitution
industrialization, and at modernizing capital markets. The regime
gradually introduced incentives to direct investment, domestic and
foreign, and tackled balance of payments problems by reforming and
simplifying the foreign-exchange system. In addition, the regime
introduced a mechanism of periodic devaluations of the cruzeiro,
taking into account inflation. Finally, the military government
adopted measures to attract foreign capital and to promote exports.
It took steps to expand public investment to improve the country's
infrastructure and later to develop state-owned basic industries.
Spectacular Growth, 1968-73
The post-1964 reforms and other policies of the military government,
together with the state of the world economy, created conditions
for very rapid growth between 1968 and 1973. In that period, the
average annual rate of growth of GDP jumped to 11.1 percent, led
by industry with a 13.1 percent average. Within industry, the leading
sectors were consumer durables (see Glossary), transportation equipment,
and basic industries, such as steel, cement, and electricity generation.
As a result of the post-1964 policies, external trade expanded
substantially faster than the economy as a whole. There was a significant
growth in exports, especially manufactured goods, but also commodities.
Yet, imports grew considerably faster, rapidly increasing the trade
deficit. This did not present a problem, however, because massive
inflows of capital resulted in balance of payments surpluses.
The external sector contributed substantially to high growth rates,
as did the rapid expansion of investment, including a growing share
of public investment and investment by state-controlled enterprises.
In addition, increased demand for automobiles, durable and luxury
goods, and housing resulted from a rapid growth in income for the
upper income strata and from credit plans created for consumers
and homebuyers by the capital-market reforms.
The industrial sector generally experienced not only rapid growth
but also considerable modernization. As a result,
imports of capital goods and basic and semiprocessed inputs
increased sharply. The share of intermediate goods imports in total
imports increased from 31.0 percent in the 1960-62 period to 42.7
percent in 1972, and that of capital goods, from 29.0 to 42.2 percent.
The total value of imports rose from US$1.3 billion to US$4.4 billion.
A comparison of the 1960 and the 1975 shares of the various industrial
sectors in total value added by industry reveals a continuation
in the relative decline of nondurable industries, notably textiles,
food products, and beverages, and an increase in machinery, from
3.2 to 10.3 percent. The relative shares of most of the remaining
industries, however, did not change significantly in the period.
As a result of the period's outward-looking development strategy,
Brazil's industrial exports increased from US$1.4 billion in 1963
to US$6.2 billion in 1973. The composition of exports shows that
whereas in 1963 processed and semiprocessed manufactured exports
accounted for only 5 percent of total exports, in 1974 their share
had reached 29 percent.
In the 1968-73 period, personal income became more concentrated
and regional disparities became greater. Industrial expansion took
place more vigorously in the Center-South Region, which had benefited
most from the import-substitution industrialization strategy. Its
per capita income considerably exceeded the national average, its
infrastructure was more developed, and it had an adequate supply
of skilled workers and professionals. The region was therefore able
to take advantage of the opportunities and incentives offered by
the military regime. Although a special regional development strategy
existed for the Northeast, it promoted a distorted industrialization
that benefited only a few of that region's large cities; the Northeast's
linkages with the Center-South were stronger than its linkages within
the region. The combination of a harsh climate, a highly concentrated
land-tenure system, and an elite that consistently resisted meaningful
change prevented the Northeast from developing effectively.
Data as of April 1997