Brazil - Economic development



Brazil Economic Development 1255
Photo by: Sete

Economic policy since the late 1960s has had three prime objectives: control of inflation, gradual improvement of the welfare of the poorest sector, and a high economic growth rate. Generally, under the stewardship of finance ministers Roberto de Oliveira Campos and, later, Antonio Delfim Netto (who became minister of planning in 1979), Brazilian policy sought to prevent inflation from eroding economic growth by a process of monetary correction—that is, by the legal revaluation of fixed assets, such as real estate, debits in arrears, and the face value of bonds, to reflect inflation. This technique, which requires extensive government control over the economy, was intended to prevent inflation from distorting the relative values of various types of holdings. It was also disastrously inflationary.

The central stress of the 1975–79 development plan was on economic growth. Economic infrastructure (energy, transportation, and communications) received top priority, with a 25% share of the total investment. A special development plan, known as Palomazonia (the Program for Agriculture, Cattle Raising, and Agrominerals for the Amazon), concentrated on expansion of agriculture, forestry, mineral exploitation, and hydroelectric power in the region. The third national plan (1980–85) placed the greatest emphasis on agricultural development, energy, and social policies. Its main aim was improvement of the public welfare through continued economic growth and more equitable income distribution.

The First National Plan of the New Republic (1986–89), sought to maintain high levels of economic growth, introduce a wide range of basic institutional and fiscal reform in the public sector, and reduce poverty significantly. When inflation continued to mount, however, the Cruzado Plan was introduced; it froze wages and prices for a year, and introduced a new unit of currency, the cruzado. While inflation did drop dramatically, the ensuing consumer spending boom, caused by the desire to take advantage of the price freeze, rekindled inflation. By 1987, Brazil had reverted to orthodox austerity and monetary correction in an attempt to bring the economy under control.

In 1994, finance minister (and later president) Fernando Enrique Cardoso implemented the Real Plan, an economic liberalization named for the newly launched currency, the real. The plan called for the abolition of state control of wages and all indexing to inflation, lowering of tariffs and barriers to international investment, and a massive selloff of state-owned enterprises in nearly every sector. The plan was almost immediately successful, and attracted huge amounts of international investment while raising the living standards of million of Brazilians. Unfortunately, the 1997–1998 international financial crisis caused the Central Bank to let the real float, devaluating the currency by 45%. Instead of immediately falling into a recession, the economy reported modest gains in 1999 and 2000. In 2001, however, economic growth slowed, in part due to the raising of interest rates by the Central Bank to counteract inflationary pressures (Brazil's real interest rates remain among the highest in the world). Brazil was also adversely affected by a domestic energy crisis and the 2001 economic crisis in Argentina, and the real depreciated almost 20% that year. Brazil has been the recipient of successive Stand-By Arrangements with the International Monetary Fund (IMF), including one for $32.4 billion approved in September 2002 which was due to expire in December 2003. In order to receive the assistance, the government pledged to enact legislation for tax and pension reform; enact a new bankruptcy law; reduce the public debt; strengthen the real; and take other steps geared toward greater macroeconomic stability. The controversial election of the left-wing Workers' Party candidate Luiz Inácio Lula da Silva as president in October 2002 brought jitters to international financial markets, but as of 2003, investors were impressed with the president's tight fiscal and monetary policies.

Brazil is on the path toward a new development strategy, that of export substitution, which, it is hoped, will allow local government to address Brazil's severe problem of unequal income distribution.

Since the early 1960s, the government has offered special incentives to agricultural and industrial enterprises that further the development of the northeastern and northern regions of the country. The development of these areas is under the supervision of the Development Superintendency of the Northeast, whose activities cover the states of Maranhão, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco, Alagoas, Sergipe, Bahia, the zone of Minas Gerais located within the Drought Polygon, and the territory of Fernando de Noronha. The Superintendency for the Development of Amazonia, the Superintendency for the Development of the West-Central Region, and the Superintendency for the Development of the Southern Region are the other regional development agencies.

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Luan Santana
Brazil is now the 7th largest economy in the world, in terms of Nominal GDP. And will become the 5th largest economy in 2012 or 2013.

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