Brazil - Overview of economy

Before World War II Brazil was the leading world producer of many agricultural goods. Sugar, rubber, and coffee were important exports. However, price variations in the world market for these commodities left the Brazilian economy vulnerable. After the war, the government

succeeded in rapidly industrializing the economy in order to diversify and decrease its dependency on imported goods. Brazil became one of the only industrialized nations of South America and an important exporter of manufactured goods. Industry and agriculture are today the country's major economic sectors. However, the country's growing prosperity was offset by the inflation caused by budget deficits .

Brazil is unable to produce enough oil to meet domestic demand, and needs to import most heavy industrial machinery and equipment. The government provides incentives for domestic petroleum production, and gives legal and fiscal incentives promoting foreign investment in heavy industry. Multinationals dominate Brazilian industry, followed by government-owned companies. The biggest government-owned company is Petróleo Brasileiro, or Petrobras, an oil drilling and processing company. Brazil has oil reserves located on the coast and in the Amazon Basin. The geography and topography are also extremely beneficial to agriculture. Most of the country has either a tropical or subtropical climate. Extensive water reserves provide for the growth of grains, which are extensive enough to meet domestic consumption and allow for substantial exports.

Government external debt more than doubled during the 1980s and 1990s. Total outstanding and disbursed debt grew from US$61.3 billion in 1979, to US$114.5 billion in 1989, and to US$221.8 billion in 1999. The increase in government debt was due mainly to increased interest paid to its lenders and the borrowing of new money to implement economic and social plans in the country. However, because the new loans were used ineffectively, the debt service increased significantly. By making bigger payments to offset the debt, the government was left with few resources to carry on its own economic and social development plans. Total debt service (the interest paid on loans) increased from US$11.3 billion in 1979, to US$14.1 billion in 1989, and to US$73.7 billion in 1999.

The Brazilian government follows International Monetary Fund (IMF) economic, fiscal, and social objectives in order to receive funds. Brazil started a structural adjustment program at the request of the IMF, receiving a US$41.5 billion financing package in November 1998. The privatization policy adopted by President Fernando Henrique Cardoso decreased government participation in industry, and brought in much-needed foreign investment. In 1999, Brazil's debt-to-GDP ratio of 48 percent beat the IMF target. After the currency was devaluated by more than 60 percent in 1999, Brazil negotiated with the IMF on adjustments to the 1999-2001 economic program. Lowered economic targets were agreed upon in January 1999, when the debt-to-GDP ratio was set to fall below 46.5 percent by the end of 2001.

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