Brazil's Economy
Characterized by large and well-developed agricultural, mining, manufacturing,
and service sectors, Brazil's economy outweighs that of all other South American
countries and is expanding its presence in world markets. From 2001-03 real
wages fell and Brazil's economy grew, on average only 2.2% per year, as the
country absorbed a series of domestic and international economic shocks. That
Brazil absorbed these shocks without financial collapse is a tribute to the
resiliency of the Brazilian economy and the economic program put in place by
former President Cardoso and strengthened by President Lula da Silva. In 2004,
Brazil enjoyed more robust growth that yielded increases in employment and real
wages. The three pillars of the economic program are a floating exchange rate,
an inflation-targeting regime, and tight fiscal policy, all reinforced by a
series of IMF programs. The currency depreciated sharply in 2001 and 2002, which
contributed to a dramatic current account adjustment; in 2003 to 2005, Brazil
ran record trade surpluses and recorded its first current account surpluses
since 1992.
Productivity gains - particularly in agriculture - also contributed to the surge
in exports, and Brazil in 2005 surpassed the previous year's record export level.
While economic management has been good, there remain important economic vulnerabilities.
The most significant are debt-related: the government's largely domestic debt
increased steadily from 1994 to 2003 - straining government finances - before
falling as a percentage of GDP in 2005, while Brazil's foreign debt (a mix of
private and public debt) is large in relation to Brazil's small (but growing)
export base. Another challenge is maintaining economic growth over a period
of time to generate employment and make the government debt burden more manageable.
Foreign Investment
As a country and emerging economy, Brazil remains a very attractive
market and over the last few years Brazil has been placed among the
top five destinations in the world for foreign direct investment (FDI),
jointly with the US, the UK, China and France. In 1999, for example,
Brazil received about US$ 30 billion in FDI. The impressive amount of
foreign investments made in the country in the last few years are in
line with the strong, traditional presence of international companies
in Brazil's leading industries, such as telecommunications, chemical
and pharmaceutical, automotive and mechanical, besides those in many
services sectors.
The inflow of FDI has been sustained, among other factors, by the size
of the domestic market, political stability, openness and improved macroeconomic
conditions achieved since Real Plan, especially in terms of enhanced
fiscal discipline and adjustment, as well as by various economic reforms,
such as the privatisation programme initiated in the beginning of the
1990s. Besides their very positive financial impact on the balance of
payments, offseting the current account deficit brought about by the
opening up of the economy since the begining of the 1990s, the FDI inflows
have played a major role in enlarging the industrial capacity and strengthening
the competitive pattern of the economy.
Financial Sector and Markets
The financial and banking system in Brazil is a very modern one. It
has been marked by a capacity to adapt to drastic changes in macroeconomic
conditions. It has successfully coped not only with important challenges,
such as the chronic inflation of the 1980s, but also with severe shocks
to the economy, such as the financial crises in the 1990s that led to
a drastic devaluation of the currency. The positive response of Brazil
to the currency crisis was due, among other factors, to the restructuring
of the banking sector and the strengthening of prudential regulation
and financial regulation undertaken since 1995.
Privatisation Programme
In line with the opening up of the economy and the strengthening of
the macroeconomic conditions for stability and growth, the Brazilian
government has carried out important economic reforms to develop the
infrastructure and enhance the productivity and competition in various
services, utilities and industrial sectors.
The privatisation programme in Brazil was initiated in 1991. It has
been one of the largest programme of this kind already put in place
by either developed or developing countries. The programme, both at
the federal and State levels, has attained a total amount near to US$
100 billion. The National Bank for Economic and Social Development (BNDES)
is the institution responsible for the implementation and monitoring
of the programme.
Excursus: Doing Business in Brazil
There are four terms that one encounters in commercial and financial
dealings in Brazil which express the way of doing business in Brazil.
1. Custo Brasil
Broadly defined, this is the extra cost of doing business in Brazil,
above and beyond that which would be normal if it weren't for corruption,
legal and bureaucratic complications, excessive taxation, and sub-standard
infrastructure. The concept is vague, yet very real: 'Custo Brasil'
actually means the cost of doing business in Brazil. This varies
widely according to the sector and geographic area. An example of
this is the cost of handling containers in Brazilian ports, which
is about double that of Europe or the US. Farmers e.g. complain
that they can not compete with Argentina, US and Europe because
of the "Brazil cost", even though they could grow their
crops at very competitive prices. By the time the farmers had met
all regulations, paid off tax inspectors, shipped soybeans to the
ports, they are more expensive than the same product from other
countries.
2. Brasil cresce de noite.
Meaning: Brasil grows at night. This is a well-known truth. No matter
what the government does to hold back the people, Brasil will get
by and grow, even if at night. The idea here is that during the
day, the government machinery stifles economic growth, but when
the bureacrats sleep, real progress occurs.
3. Jeitinho
The concept of 'jeitinho' is flexibility, it is a person who always
finds 'his little way' around rules and regulations. Although this
is a solution to some of the difficulties inherant to the 'custo
Brasil', it is also part of Brazils' problems because it undermines
authority. However, without 'jeitos' you'll get nowhere.
4. Caixa 2
There might not be any business in Brazil that does not have a "caixa
2", meaning translated 'Cash Account Number 2'. It is all money
or assets that are kept off the books and official records. This,
of course, keeps it away from the tax authorities.
Public Finance and Fiscal Policy
Since the currency crisis in Asia and Russia 1997-98, Brazil has undertaken
major adjustments in its fiscal policy, which basically have included
three main components:
- (a) immediate tightening of financial policies, through the control of
current expenditures, including budget cuts, and increases in revenue, via
for instance the introduction financial taxes;
- (b) a multi-year fiscal adjustment programme (1999-2001), which served
as the basis for an agreement with the IMF; and Agreement with the IMF.
- c) the continuation of the institutional and structural reforms aiming
at greater fiscal discipline and stability in public finance.
The year 1999 marked a major turnaround in Brazil's fiscal performance. The
targets established in the programme with the IMF were achieved, in the context
of very positive fiscal results: (a) the primary surplus of the consolidated
public sector was 3,1% of GDP; and (b) the nominal public sector deficit reached
a level of 9.5% of GDP. In 2000, similar progress has been achieved, and Brazil
has regularly met all the targets set with the IM.
The Brazilian Government
Brazil is a legal democratic state founded on sovereignty, citizenship,
dignity of the human person, the social values of labour and of free
enterprise, and political pluralism. All power emanates from the people,
who exercise it by means of democratically elected representatives.
The present Constitution was formally promulgated on 5 October 1988
by a specially empowered National Congress. The 1988 Federal Constitution
incorporates many new concepts ranging from environmental protection
to political rights and social welfare. According to article 3 of the
Constitution, the fundamental objectives of the Federative Republic
of Brazil are: to build a free, just, and solidarity-based society;
to guarantee national development; to eradicate poverty and substandard
living conditions and to reduce social and regional inequalities; and
to promote the well-being of all, without prejudice as to origin, race,
sex, colour, age, and any other forms of discrimination. All persons
are equal before the law, without any distinction whatsoever, Brazilians
and foreigners residing in the country being ensured of inviolability
of the rights to life, liberty, equality, security and property.
At
the federal level of Government, there are three independent powers in the Brazilian
presidential system, operating harmoniously among themselves under a system
of checks and balances: the Executive, the Legislature, and the Judiciary (see
below). At the state level, each State has its own government, with a structure
that mirrors the Federal Government, enjoying all the powers (defined in its
own constitution), which are not specifically reserved for the Federal Government
or assigned to the Municipalities. The head of the state executive is the Governor,
elected by direct popular vote. The one-chamber state legislature is a State
Assembly. The state judiciary follows the federal pattern and has its jurisdiction
defined so as to avoid any conflict or superimposition with the federal courts.
At the municipal level, there are over 5,500 Municipalities that are autonomous
in strictly local affairs.
Elections & Political Parties
In Brazil, the sovereignty of the people is exercised according to the
law by universal suffrage and by the direct and secret voting, with equal
value for all. Electoral enrolment and voting are mandatory for all literate
citizens from 18 to 70 years of age. Voting is optional for citizens aged
16 and 17, for senior citizens above 70, and for illiterates of any age.
Foreigners cannot register as voters and neither can conscripts during
their period of compulsory military service. The illiterate and those
that cannot be registered as voters are not eligible. Nowadays, the number
of citizens entitled to vote throughout Brazil reaches almost 100 million
voters.
The Superior Electoral Court (Tribunal Superior Eleitoral - TSE) has jurisdiction
over all aspects of the Brazilian elections, including enrolment of voters,
registration of political parties and candidates, supervision of the voting
itself, and release of the results to the public. At the state level,
elections are within the responsibility of the Regional Electoral Court
(Tribunal Regional Eleitoral - TRE) in each State of the federation.
Any candidate willing to run for an election in Brazil must belong to
a political party. The creation, amalgamation, merger, and extinction
of political parties are free, with due regard for national sovereignty,
the democratic regime, the plurality of political parties, the fundamental
rights of the individual, and the provisions of the Constitution. Political
parties are ensured of autonomy to define their internal structure, organisation
and operation, and their by-laws shall establish rules of party loyalty
and discipline. Even though enjoying a high degree of political autonomy,
political parties are expressly forbidden to organise or use paramilitary
forces, and they must be formally registered at the Superior Electoral
Court, following the fulfilment of certain minimum requirements established
by legislation.
Sources: Brazilian
Embassy in London, Wikipedia,
CIA-Factbook
