[Home]History of Brazil/Economy

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Revision 6 . . August 16, 2001 9:15 am by Koyaanis Qatsi [dept state]
Revision 5 . . (edit) July 31, 2001 11:16 pm by Koyaanis Qatsi ["CIA Factbook" --> "CIA World Factbook"]
Revision 4 . . July 31, 2001 11:03 pm by Pinkunicorn [I don't think this is an improvement]
  

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Brazil is the tenth-largest economy in the world, with 2000 GDP of $588 billion. It is a highly diversified economy with wide variations in levels of development. Most large industry is concentrated in the south and southeast. The northeast is traditionally the poorest part of Brazil, but it is beginning to attract new investment. Brazil embarked on a successful economic stabilization program, the Plano Real (named for the new currency, the real; plural: reais) in July 1994. Inflation, which had reached an annual level of nearly 5,000% at the end of 1993, fell sharply, reaching a low of 2.5% in 1998; it was 6% in 2000. Brazil successfully shifted from an essentially, fixed exchange rate regime to a floating regime in January 1999.

The Cardoso administration has introduced to Congress a series of constitutional reform proposals to replace a state-dominated economy with a market-oriented one and to restructure all levels of government on a sound fiscal sound basis. Congress has approved several amendments to open the economy to greater private sector participation, including foreign investors. By the end of last year, Brazil's privatization program, which included the sale of steel and telecommunications firms, had generated proceeds of more than $90 billion. Passage of the Fiscal Responsibility Law in mid-2000 improved fiscal discipline at all three levels--federal, state, and municipal--and all three branches of government. Some measures have been adopted to address large deficits in Brazil's pension programs, but more remains to be done. Tax reform--simplification--has been under debate for over 2 years, but there has not yet been sufficient closure for final legislative action. Despite fiscal austerity, the administration has acknowledged the need to invest more in education and health to redress social inequity.

Market opening and economic stabilization have significantly enhanced Brazil's growth prospects. Brazil's trade has almost doubled since 1990. U.S. direct foreign investment has increased from less than $19 billion in 1994 to an estimated $35 billion through 2000. The United States is the largest foreign investor in Brazil. Upcoming privatizations in the power and banking sectors will likely elicit strong interest from U.S. firms.

Brazil is endowed with vast agricultural resources. There are basically two distinct agricultural areas. The first, comprised of the southern one-half to two-thirds of the country, has a semi-temperate climate and higher rainfall, the better soils, higher technology and input use, adequate infrastructure, and more experienced farmers. It produces most of Brazil's grains and oilseeds and export crops. The other, located in the drought-ridden northeast region and in the Amazon basin, lacks well-distributed rainfall, good soil, adequate infrastructure, and sufficient development capital. Although producing mostly for self-sufficiency, the latter regions are increasingly important as exporters of forest products, cocoa, and tropical fruits. Central Brazil contains substantial areas of grassland with only scattered trees. The Brazilian grasslands are less fertile than those of North America and are generally more suited for grazing.

Brazilian agriculture is well diversified, and the country is largely self-sufficient in food. Agriculture accounts for 8% of the country's GDP, and employs about one-quarter of the labor force in more than 6 million agricultural enterprises. Brazil is the world's largest producer of sugarcane and coffee, and a net exporter of cocoa, soybeans, orange juice, tobacco, forest products, and other tropical fruits and nuts. Livestock production is important in many sections of the country, with rapid growth in the poultry, pork, and milk industries reflecting changes in consumers tastes. On a value basis, production is 60% field crop and 40% livestock. Brazil is a net exporter of agricultural and food products, which account for about 35% of the country's exports.

Half of Brazil is covered by forests, with the largest rain forest in the world located in the Amazon Basin. Recent migrations into the Amazon and largescale burning of forest areas have placed the international spotlight on Brazil. The government has reduced incentives for such activity and is beginning to implement an ambitious environmental plan--and has just adopted an Environmental Crimes Law that requires serious penalties for infractions.

Brazil has one of the most advanced industrial sectors in Latin America. Accounting for one-third of GDP, Brazil's diverse industries range from automobiles, steel, and petrochemicals, to computers, aircraft, and consumer durables. With the increased economic stability provided by the Plano Real, Brazilian firms and multinationals have invested heavily in new equipment and technology, a large share of which has been purchased from U.S. firms.

Brazil has a diverse and sophisticated services industry as well. During the early 1990s, the banking sector accounted for as much as 16% of GDP. Although undergoing a major overhaul, Brazil's financial services industry provides local firms a wide range of products and is attracting numerous new entrants, including U.S. financial firms. The Sao Paulo and Rio de Janeiro stock exchanges are undergoing a consolidation and the reinsurance sector is about to be privatized.

The Brazilian Government has undertaken an ambitious program to reduce dependence on imported oil. Imports previously accounted for more than 70% of the country's oil needs but now account for about 33%. Brazil is one of the world's leading producers of hydroelectric power, with a current capacity of about 58,000 megawatts. Existing hydroelectric power provides 92% of the nation's electricity. Two large hydroelectrical projects, the 12,600 megawatt Itaipu Dam on the Parana River--the world's largest dam--and the Tucurui Dam in Para in northern Brazil, are in operation. Brazil's first commercial nuclear reactor, Angra I, located near Rio de Janeiro, has been in operation for more than 10 years. Angra II is under construction and, after years of delays, is about to come on line. An Angra III is planned. The three reactors would have combined capacity of 3,000 megawatts when completed.

Proven mineral resources are extensive. Large iron and manganese reserves are important sources of industrial raw materials and export earnings. Deposits of nickel, tin, chromite, bauxite, beryllium, copper, lead, tungsten, zinc, gold, and other minerals are exploited. High-quality coking-grade coal required in the steel industry is in short supply.


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