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.
Economy - overview: Possessing 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. In the late eighties and early nineties, high inflation hindered economic activity and investment. The Real Plan, instituted in the spring of 1994, sought to break inflationary expectations by pegging the real to the US dollar. Inflation was brought down to single digit annual figures, but not fast enough to avoid substantial real exchange rate appreciation during the transition phase of the Real Plan. This appreciation meant that Brazilian goods were now more expensive relative to goods from other countries, which contributed to large current account deficits. However, no shortage of foreign currency ensued because of the financial community's renewed interest in Brazilian markets as inflation rates stabilized and the debt crisis of the eighties faded from memory. The maintenance of large current account deficits via capital account surpluses became problematic as investors became more risk averse to emerging market exposure as a consequence of the Asian financial crisis in 1997 and the Russian bond default in August 1998. After crafting a fiscal adjustment program and pledging progress on structural reform, Brazil received a $41.5 billion IMF-led international support program in November 1998. In January 1999, the Brazilian Central Bank announced that the real would no longer be pegged to the US dollar. This devaluation helped moderate the downturn in economic growth in 1999 that investors had expressed concerns about over the summer of 1998. Brazil's debt to GDP ratio of 48% for 1999 beat the IMF target and helped reassure investors that Brazil will maintain tight fiscal and monetary policy even with a floating currency. The economy is expected to push growth up to 3% in 2000.
For several decades, Brazilian development has been (successfully) based on an import substitution strategy.
The main problem in the 1980s was the enormous inflation.
In 1990, after a few years of an informal and slow opening of the economy, the country has made some dramatic changes, strongly reducing the import tariff and emphasizing the need for quality (read ISO 9000 series adoption).
In 1994, the Real plan succesfully eliminated inflation, and Brazilian purchasing power has dramatically improved. Almost 25 million people turned into consumers "overnight". Consumer good imports have grown very fast at a first stage. Companies, realizing the business opportunities, increased its investment in Brazil and slowly the import pattern has changed from consumer goods into machinery and other capital goods.
Nowadays, Brazil is facing a new challenge: to move forward into a new development strategy - the "export substitution" phase. This will also enable local government to reduce the inequalities in wealth distribution.
GDP: purchasing power parity - $1.057 trillion (1999 est.)
GDP - real growth rate: 0.8% (1999 est.)
GDP - per capita: purchasing power parity - $6,150 (1999 est.)
GDP - composition by sector:
agriculture:
14%
industry:
36%
services:
50% (1997)
Population below poverty line: 17.4% (1990 est.)
Household income or consumption by percentage share:
lowest 10%:
0.8%
highest 10%:
47.9% (1995)
Inflation rate (consumer prices): 5% (1999)
Labor force: 74 million (1997 est.)
Labor force - by occupation: services 42%, agriculture 31%, industry 27%
Unemployment rate: 7.5% (1999 est.)
Budget:
revenues:
$151 billion
expenditures:
$149 billion, including capital expenditures of $36 billion (1998)
Industries: textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel, aircraft, motor vehicles and parts, other machinery and equipment
Industrial production growth rate: -2.6% (1999 est.)
Electricity - production: 316.927 billion kWh (1998)
Electricity - production by source:
fossil fuel:
4.92%
hydro:
91.02%
nuclear:
0.99%
other:
3.07% (1998)
Electricity - consumption: 336.242 billion kWh (1998)
Electricity - exports: 0 kWh (1998)
Electricity - imports:
41.5 billion kWh
note:
imports electricity from Paraguay (1998)
Agriculture - products: coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus; beef
Exports: $46.9 billion (f.o.b., 1999)
Exports - commodities: manufactures, iron ore, soybeans, footwear, coffee
Exports - partners: US 18%, Argentina 13%, Germany 5%, Netherlands 5%, Japan 4% (1999)
Imports: $48.7 billion (f.o.b., 1999)
Imports - commodities: machinery and equipment, chemical products, oil, electricity
Imports - partners: US 23%, Argentina 12%, Germany 10%, Japan 5%, Italy 5% (1999)
Debt - external: $200 billion (1999)
Economic aid - recipient: $1.012 billion (1995)
Currency: 1 real (R$) = 100 centavos
Exchange rates:
reals (R$) per US$1 - 1.804 (January 2000), 1.815 (1999), 1.161 (1998), 1.078 (1997), 1.005 (1996), 0.918 (1995)
note:
from October 1994 through 14 January 1999, the official rate was determined by a managed float; since 15 January 1999, the official rate floats independently with respect to the US$
Fiscal year: calendar year