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THE BRAZILIAN ECONOMY.
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Paper Abstract:
Reviews published materials and economic statistical data. Brazil's geographic setting, social profile; population growth, governmental form. Various aspects of Brazil's economy including overview, economic development, industrial structure, trade and investment, infrastructure, economic aggregates, foreign debt, key industries. Income distribution. Principal exports. Key economic indicators. Issue of land reform. Future economic outlook.
Paper Introduction:
THE BRAZILIAN ECONOMY: A REVIEW
Introduction
This research reviews the economy of Brazil. The review is in the form of a case study. The study methodology involves the review of published materials and the reporting of relevant published economic statistical data. The review of the Brazilian economy does not involve the performance of statistical analysis; however, the review does include the assessment of data presented.
The initial section of the study covers (1) Brazil’s geographic setting, (2) the country’s social profile, and (3) the governmental form in Brazil. These factors provide the environment within which Brazil’s economy develops and functions.
The remaini
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BNDES. The reviewconcludes with an economic outlook for Brazil. The firm also distributes liquefiedpetroleum gas ("Petrobas Distribuidora SA," 1999). Such judgments, however, are made by peopleresiding comfortably in developed economies, with little understanding orappreciation of what is required to move the world's sixth largest country(population), and tenth largest economy (gross national product) from thestatus of a developing to a developed country. Wright Investors' Service, Inc.http://profiles/wisi.com/profiles/ scripts/cos)1.asp?cusip= C 762 6 Cia Brasileira De Petrolo Ipiranga. National Catholic Reporter, 32, 4. Brazil bishops ask for agrarianreform. The nation's strong public sector is committed to liberalizedtrade and investment relations with other countries. Thus, Brazil needs toshift more economic activity from agriculture to services to move closer tothe upper middle-income countries (The World Bank, 2 1). Appendix of statistics. This statement may appearto be in conflict with the mechanism of the supply curve, but, in reality,there is not conflict. the brazilian economy: a review Introduction This research reviews the economy of Brazil. The country has not has a favorable trade balance foryears. Wright Investors' Service, Inc.http://profiles/wisi.com/profiles/scripts/cos)1.asp?cusip= C 76213 Gerdau Sa. The undeveloped Brazil isapproximately twice the size in population as is the developed Brazil.These inequities must be corrected, if chaos is to be avoided, or, asformer president Sarney said, avoid setting the fire to the powder keg. Wright Investors' Service, Inc.http://profiles/wisi.com/profiles/scripts/cos)1.asp?cusip= C 76J 25 Perney, L. Form of Government Brazil is a republic. Petrobas Distribuidora SA: Petrobas Distribuidora SA is inthe business of selling and distributing petroleum derivatives (gasoline,diesel fuel, fuel oil, and jet kerosene), natural gas, industrial hydratedalcohol, and related activities. Wright Investors' Service,Inc. 2. Coffee producers will provide greater quantities oftheir product as prices rise; however, when the supplies of coffee reachthe point of saturation (there is no longer any unsatisfied demand forcoffee), coffee prices will fall if the supply continues to increase. |- .7 | 1.7 ||Per Capita - US$ |3,5 |3,697 |3,8 8 |3,781 |3,846 ||Balance of Payments - | ||US$ bil | ||Current Account |-18.1 |-24.8 |-33.5 |-39.3 |-45.8 ||Trade Balance |-3.2 |-5.5 |-8.4 |-8.7 |-4.2 ||Exports | 3.2 | 5.5 | 8.4 |13.9 |19.2 ||Imports |-46.5 |-47.7 |-53. In Brazil, the larger the land holding inarea, the lower is the proportion of the land that is used for agriculturalpurposes. The firm also operates a national chains ofgasoline stations ("Cia Brasileira De Petrolo Ipiranga," 1999).Steel & Mining Industry Steel making and mining also are important industrial activities inBrazil. (1999). While Brazilian cities are generally well off, distressing numbers ofpeople are required to live in the favelas, or shantytowns, that havedeveloped on the outskirts of the country's major urban areas. Overview of the Economy Brazil's economy retains an essentially capitalist, free-marketorientation. In the Amazon region of Brazil, land reform has been effected throughthe creation of extractive reserves. The land, however, remainsthe property of the nation as a whole. Sharp SA Equipamentos Electronicos. The greatest threat to the effective functioning ofinternational commodity agreements always has been the willingness of thesignatories of the agreements to support the production and pricingobjectives of the agreements. Economic Aggregates Data relevant to interest rates, inflation, money supply, and foreignreserves are presented in Table 2. (1999). Martin's Press. Buenos Aires, Argentina: Centro de Estudios deEstado y Sociedad (CEDES)). (1995, November 1 ). The companyhas production facilities in five countries other than Brazil ("BrasmotorS/A," 1999). Brazil's external debt is huge and continues to increase, althoughrecent debt increases have been modest.|Table 1 Brazil: Key Economic Indicators ||Measure v Year > |1996 |1997 |1998 |1999 |2 ||Gross Domestic Product | ||(GDP) | ||Real GDP - US$ bil |545 |561 |578 |574 |575 ||GDP Growth - % |5.8 |2.9 |3. Petroleo Brasileiro S/A-Petrobas (PETRPN): PetroleoBrasileiro S/A-Petrobas is Brazil's largest company of any type and thefirm ranks among the largest industrial corporations in a global context("Petroleo Brasileiro S/A-Petrobas," 1999). (2 1, October). One might be tempted to believe that Brazil's foreign debt hasdecreased because of its faithful payments. (1999). Industrial Structure The services sector accounts for 49 percent of Brazil's GDP. Installed electricity capacity in Brazil approximates 26, megawatts. 3. 3. Early in 1996, however,the Brazilian government modified directives related to the creation andmaintenance of the extractive reserves to increase the "opportunities" forbusinesses from outside the region. Some people in the first world tend to view Brazil asa country out of control. The executive branch of government tends to bethe dominant branch. Thus, when the price for the commodity collapses,serious economic consequences loom for such countries, as the terms oftrade of a pillar of their economy have changed. (1999). Once the market iscleared, prices will rise again. The company alsomanufactures and markets industrial and commercial electric appliances("Electrolux Do Brasil SA," 1999). 21). Land reform in Brazil has been a promise of politicians sincethe colonial period; therefore, ordinary Brazilian citizens tend to beskeptical of such pronouncements by political leaders. Railways connect all sections of the country and thehighway system is rapidly becoming a national network, although the highwaysystem is most extensive in the eastern sections of the country (Hunter,2 1). The country's electricity generation and distribution is in theprocess of being privatized (Hunter, 2 1). In fact, however, Brazil'sforeign debt in 2 1 stands at US$27 billion (BNDES, 2 1). Growth prospectsfor the industry are strong. The absence of an integrated transportation system delayedthe early economic development of the country. Rather, Sarney was inaugurated as president, and prior to theelection, he had led the pro-military faction in the Brazilian congress. The review is in theform of a case study. The IMF, however, plays a special rolein this loan activity, because it, for the most part, establishes the rulesof the game for all parties, as well as extending loans on its own. Important Industries When one thinks of industries in Brazil, one usually thinks of coffee. Thus, whatever the leaders in the developed countriesmay think of Brazilian economic and social policy under Sarney, they werenothing like they would have been under a President Neves. Under the extractive-reserve system,rubber tappers and other indigenous peoples are granted concessions for useof the land they have traditionally occupied. Brazil has experienced and continues to experience serious economicand social problems. The firm is wholly integrated in the processing of materialsfrom iron ore to finished products ("Companhia Metalurgica Barbara," 1999). New York:St. http://profiles/wisi.com/profiles/ scripts/cos)1.asp?cusip=C 762 69 Companhia Metalurgica Barbara. Unquiet on the Brazilian front.Audubon, 94, 26. 3. ||Total External Debt - | ||US$ bil | ||Debt |158.3 |16 .8 |162.7 |165. An additional two million people occupy squatter farmswithout title deeds, and another 5.2 million persons are employees on landowned by the societal elite. Their numbers are usually more than a city canaccommodate. Paranapanema SA: Paranapanema SA conducts large-scale miningactivities. The peoplewho live in the favelas moved from the countryside without promise of agood job, but with hope that they will be able to participate in animproving economy. The problem, however, is that Brazil has run a hugeforeign trade deficit for years and there is little sign that this trend isgoing to change substantially in the next few years (Hunter, 2 1). (1994, November-December). The company also manufactures mining equipment and preparesmetals for industrial uses ("Paranapanema SA," 1999).Electronic Materials Industry Electronics and electric motors also are important manufacturingactivities in Brazil. The government of the country is based on a federalsystem, wherein the states have significant autonomy. Hehad recruited the conservative Sarney as a vice presidential candidate tobalance his ticket. (2 1). |-57.9 |-65. The country's principalexports are coffee, soy beans, cocoa, sugar, orange juice concentrate, ironore, tobacco, manufactured equipment, machine tools, machines, instruments,metallurgical products, chemical products, pulp, and paper (Hunter, 2 1). Income distribution is highly skewed in Brazil, where the richest 1 percent of the population receive 5 .6 percent of national income. The company also operates afinancial subsidiary ("Sharp SA Equipamentos Electronicos," 1999).Coffee Coffee is a commodity that is marketed globally. Inter-American Development Bank. While Brazil hassome military involvement in its government in its past history, thecountry does not have the typical Latin American experience of almostcontinual political upheavals. The country's airline system has majorinternational interconnections, as well as an extensive domestic network(Hunter, 2 1). Increased concentration of land ownership has caused in excess of5 , Brazilians to emigrate to neighboring countries in search of landand work. The initial section of the study covers (1) Brazil's geographicsetting, (2) the country's social profile, and (3) the governmental form inBrazil. Braziloccupies almost all of eastern South America, and has borders withArgentina, Bolivia, Colombia, French Guiana, Guyana, Paraguay, Peru,Surinam, Uruguay, and Venezuela. Economic Outlook For Brazil The Economist of London holds that Brazil has weathered the country'spost-devaluation better than had been anticipated. Unregulated international trade and capital movementsin the name of neoliberalism put the poor everywhere in competition withone another while facilitating the plunder of the world's natural resourcesby the wealthy. Industryaccounts for 37 percent of GDP, and agriculture accounts for 14 percent.As a part of the industrial sector, manufacturing accounts for 24 percentof the country's GDP. 2. There is little space in the neoliberal paradigm forpopularly based development strategies promoted by states that areaccountable to their peoples. The bottom quintile received only2.1 percent of the country's income (The World Bank, 2 1). (1999). Brazil's income distribution is highly skewed, with the top quintilereceiving 67.5 percent of the income. In southern Brazil, large capital-intensive entrepreneurial farmspredominate. Collor's personal scandals might not have led to his impeachmentif he had not been seen by the Brazilian public as a tool of internationalmonetary interests. Brazil has a well-educated work force. The firm's business activitiesinclude exploration, production, refining, and marketing petroleumproducts, operating gasoline stations, and conducting maritime freightoperations ("Petroleo Brasileiro S/A-Petrobas," 1999). Through the 198 s, prices for coffee were governed largely byinternational commodity agreements negotiated among producer countries.The primary purpose of international commodity agreements is to provideprice stability within the commodity markets covered by the agreements.Other factors, such as weather, economic recession in consumer countries,and other adverse market conditions also affect world prices forcommodities. The political influence of the land owners in this area ofthe country make it difficult to achieve any meaningful redistribution ofthe rights to land in this area (Barraclough, 1994). Loans involved in a country's external debt are extended by othergovernments, by international organizations (primarily the IMF -International Monetary Fund - and The World Bank), and by private sectorlenders in other countries (primarily banks, but also by investors who buybonds and other debt obligations). In the farming regionof southern Brazil, 8 percent of the arable land is owned by 1 percent ofthe farmers. In 1995, Brazilian President Cardoso promised to implement greaterland reform. |168.1 ||Debt Service |22.7 |23. Petrobas Distribuidora SA. Wright Investors' Service,Inc. Thatproportion compares to 26.6 percent in the United States. Brazil. The average proportion of land devoted to agricultural purposesof 64 percent for the smallest land holdings drops steadily to .14 onaverage for estates of 1 , or more hectares (McDonagh, 1995). Both tension and violence havesurrounded the land occupations. Three leading firms in electronics are as follows: 1. Approximately 38 percent ofthe population completes secondary school, and 9.5 percent completepostsecondary work (The World Bank, 2 1). The governmentdepends to a great extent on entrepreneurial efforts and private capital(both foreign and domestic) as the sources of economic growth and limitsits domestic role to coordinating fiscal and monetary policy, providing forinfrastructure development, and promoting investment and industrialdevelopment (Altimir, 1999). Instead, however, Brazil was persuaded to acceptthe restructuring arrangement suggested by the United States. Washington, D.C.:Inter-American Development Bank. (1999). An extensive and efficienttransportation infrastructure exists, however, in contemporary Brazil(United States Central Intelligence Agency, 2 1). Mostof this foreign investment is designed to capture market segments incountry's domestic economy. The study methodology involves the review ofpublished materials and the reporting of relevant published economicstatistical data. The 28 , families translated in to approximately1.5 million persons, which represents only a fraction of the approximately12.2 landless persons living in the Brazilian countryside. http://profiles/wisi.com/profiles/ scripts/cos)1. A total of approximately 7.5 million acres have beendesignated as extractive reserves (Perney, 1992). Brazil, however, has other highly developedand important industries.Oil & Gas Industry Brazil is a leading oil and gas producer. (1999). (Ed.). Brazil's telecommunications system is extensive and growing.Privatization began in 1997 and was completed in 1998. The review of the Brazilian economy does not involve theperformance of statistical analysis; however, the review does include theassessment of data presented. In early-June 2 , the Wall Street Journal reported that coffeeprices dropped as supplies of coffee increased. A country's external debt iscomprised of loans to both government and private sector organizations inthe country. Loans to government entities involve sovereign risk, whileloans to all other entities involve enterprise risk. Geographic Setting Geographically, Brazil is the largest country in South America, withan area of somewhat more than 8.5 million square kilometers. The table may be found below on thispage.|Table 2 Brazil: Macroeconomic Aggregates ||Measure v Year > |October 2 1 |October 2 |October 1999 ||Interest Rates | ||9 -Day |19.5 % |21.9 % |17.78% ||Inflation Rate | 1.32% | .84% | 1.27% ||Source: BANDEZ, Brazil, 2 1 | As the data presented in Table 2 indicate, interest rates remain highin Brazil. Cia Brasileira De Petrolo Ipiranga (PTIPPN): Cia BrasileiraDe Petrolo Ipiranga distributes diesel fuel, gasoline, hydrated alcohol,industrial and automotive lubricating oils and greases, natural gas, andother related products. Prices are falling because thecoffee producers have an excess supply on their hands. Brazil wasthreatening to default and get out of the nonsensical revolving (and alwaysincreasing) debt game with the International Monetary Fund, the World Bank,and the United States. When Brazil held free elections in the mid-198 s toreturn the country to civilian democratic rule, Tancredo Neves, leader ofthe Democratic Movement of Brazil Party (PMBD) won the presidency. NACLA Report on the Americas, 28, 21. Social Profile Brazil's population as of July 2 was estimated to be 171 millionpersons. More than five million landless people remain in thecountryside. Key economic indicators for Brazil are presented in Table 1. Brazil is classified by the World Bank (2 1) as an upper-middle-income country. What the chart does not indicate is that huge spikes ininterest rates have occurred over the past two years, although they havebeen short lived. The statesman's year-book, 2 1. Ethnically, Portuguese, Italian, Japanese, German, African, andindigenous (Indians) peoples are represented in Brazil's population.Whites, primarily Portuguese, account for 58 percent of the population,while the Mulattos, the products whites and Black unions, account for 38percent of the country's population, Blacks account for six-percent of thepopulation, and Indians account for one-percent of the population (UnitedStates Central Intelligence Agency, 2 1). Brasmotor S/A (BRMOPN): Brasmotor S/A manufactures,produces, and distributes washers, dryers, kitchen ranges, microwaves,dishwashers, freezers, refrigerators, and air conditioners. Modern and major ports stretch allalong the country's Atlantic coast. Brazil is a mountainous country, a characteristic that has in thepast, impeded the development of an integrated transportationinfrastructure. Wright Investors' Service,Inc. Remarkably, on the eve of his inauguration, Nevessuffered a heart attack from which he never recovered, and he never becamepresident. asp?cusip=C 762124 Sharp SA Equipamentos Electronicos. Thistable may be found on the following page. 2. The extractive reserves areadministered by so-called extractive peoples' cooperatives, which in effectare unions. Brazil is a major shipping nation. When Ferdinand Collor was elected president of Brazil, the IMF and thegovernments of the developed countries had found a true economic ally whowas willing to try to make Brazil kow-tow to the world's internationalbankers. Now fiveyears later in 1999, Brazil had paid US$126 billion over the five yearperiod. Sharp SA EquipamentosElectronicos is a holding company of subsidiary firms that manufacture andmarket a wide variety of electronic equipment. The country has a strong and diverse resource base, anindustrial sector that includes manufacturing, a strong agriculturalsector, and a services sector that includes financial services,transportation, communications, and trade both retail and wholesale.Brazil has a diverse and strong export base. Paranapanema SA. The remaining sections, the bulk of the review, cover various aspectsof Brazil's economy. A relatively weakrecovery, but nevertheless a recovery, is projected for 2 2 with strongergrowth predicted for 2 3. Coffee is an important industry in Brazil. References Altimir, O. So prospects for land reform look bleak ..."(Barraclough, 1994, p. Economic Bulletin, 34.http://www.bndes.gov.br/english/Gentab.htm Brasmotor S/A. http://profiles/wisi.com/profiles/ scripts/cos)1.asp?cusip=C 76C511 The International Commodity Agreement on Coffee collapsed in 1989largely because of disagreements both between and within the producingcountries on the division of the benefits resulting from higher prices.The world price for coffee collapsed over the period stretching from late-summer 1994 to late-spring 1995. Manufactures include concrete reinforcedbars, wire rods, bars and shapes, and ingots/billets ("Gerdau Sa," 1999). Prior to the beginning of the intensified trend towards theglobalization of economic activity, however, such factors could be managedwithin a well functioning international commodity agreement, whichfunctions as a cartel. Further, coffee is a leadingexport earner for the country. The averages for all upper middle-income countriesare 53 percent for services, 37 percent for industry (2 percent formanufacturing), and 1 percent for agriculture. Wright Investors' Service, Inc.http://profiles/wisi.com/profiles/scripts/ cos)1.asp?cusip=C 76212 Petroleo Brasileiro S/A-Petrobas. Three leading firms in this industry group are as follows: 1. http:// www.undp.org/hdro/oc29.htm Barraclough, S. The topics covered include the following: (1)overview of the economy; (2) economic development; (3) industrialstructure; (4) trade and investment; (5) infrastructure; (6) economicaggregates; (7) foreign debt; and (8) important industries. With respect to trade, Brazil has an activeinternational trade. In an area bordering Bolivia, statepolice fired on a land occupation site, killing nine people, while in SaoPaulo State, a judge ordered the arrest of 13 leaders of a land occupation. It is highlyunlikely that Brazil will ever reduce its external debt to any significantdegree as long as the country continues to play the loan shark game withthe International Monetary Fund, the World Bank, and the United States. The concentration of land ownership by thesocietal elite began in the colonial period, and has been substantiallyincreased since the mid-196 s by governmental modernization and developmentpolicies (McDonagh, 1995). Trade and Investment Brazil's foreign investment experience continues to be strong. Onemight question why coffee producers would continue to increase supplies insuch a situation. Wright Investors' Service, Inc.http://profiles/wisi.com/profiles/scripts/cos)1.asp?cusip= C 763 53 Hunter, B. (1999). Companhia Metalurgica Barbara (BARBPN): CompanhiaMetalurgica Barbara manufactures, sells, and exports steel pressure pipeand valves. Three leading firms in thisindustry are as follows: 1. The agencyreported that 1,658 members of movements related to land disputes weremurdered between 1964 and 1991, and that only 12 of the alleged killershave ever gone to trial; of those 12, only five have been sentenced toprison (Perney, 1992). "The international context is particularly unfavorable fordeep social reforms. The legacy of LatinAmerican land reform. Brazil has a two-tiered economy -almost as if there are two countries within a single country - onedeveloping country, and one developed country. The country also has an extensiveinland waterways system. Almost 8 percent of Brazil's population resides in urban areas.The rate of population growth in Brazil approximates 1.5 percent.Population density is 18.2 persons per square kilometer (The World Bank,2 1). Neveswas a true radical socialist in the American connotation of the word. Infrastructure Brazil has an extensive and sophisticated transportationinfrastructure. |23.4 |23.6 |24.1 ||Source: Inter-American Development Bank, 2 1 | Economic Development Brazil is a country in which one-percent of the landowners control 44percent of the arable land. In 1994, Brazil's foreign debt stood at US$148 billion. Be that as it may,the Brazilian federal government promised to 28 , families on 11 millionhectares of idle land. (1999). One adverse consequence of the high concentration of land ownership isunproductive use of arable land. The richest 2 percent of Brazilians control two-thirds of national income, compared to42.8 percent in the United States. (1999), Growth, poverty in Latin American Countries.Occasional Paper (29). (2 1). Foreign Debt An external deficit develops for a country when the claims of foreignentities on the country's economy exceed the claims of entities in thatcountry on the economies of other countries. These factors provide the environment within which Brazil'seconomy develops and functions. The Pastoral Land Commission reported that 942 rural workers, lawyers,trade union leaders, and church personnel associated with the campaign forland reform were killed from 1985 to 1995 (McDonagh, 1995). Electrolux Do Brazil SA (REFPPN): Electrolux Do Brasil SAmanufactures and markets household electric appliances. Of these 5.2 million persons, only 22.5percent have formal contracts with the land owners (McDonagh, 1995). Sarney, as president, granted amnesty to the military and police fortorture and other abuses committed during the period of military rule.Sarney also reshuffled the Neves cabinet to provide a more conservativeorientation, and to preserve military control, or, at least, a militaryveto in the cabinet. For many of thecountries that produce commodities, coffee is the primary source of foreignexchange earnings. The excess coffee production is another outcome of El Niño, in thatthe system caused the normally colder months in Brazil to be warmer, which,in turn, produced a bumper coffee crop. Gerdau Sa (COSGPN): Gerdau Sa is the largest manufacturer oflong-rolled steel in Brazil. Maps of Brazil are presented on thefollowing two pages to provide the reader with perspective of Brazil withinSouth America and to illustrate the federal structure of the country byshowing the individual states in the union (United States CentralIntelligence Agency, 2 1). As the data presented in thetable indicate, Brazil's economy has been in the doldrums for most of thepast two years. Wright Investors' Service, Inc.http://profiles/wisi.com/profiles/scripts/ cos)1.asp?cusip=C 762 74 Electrolux Do Brasil SA. The issue of land reform assumed a high-profile status in Brazil in1995, as a consequence of a continuous series of land occupations organizedby the Landless Rural Workers' movement. Although Brazil's government may appear somewhat radical to someobservers in the first world, it is actually much more conservative thanwould be expected. In point of fact, however, producers of agriculturalcommodities such as coffee are limited in the extent to which they can keeptheir products off the market because of storage capacities andperishability. (1992, January-February). McDonagh, F.
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