Brazil An Economy Recovering From Chaos
Brazil earned the reputation of being a "miracle economy" in the late 1960s when double-digit annual growth rates were recorded and the structure of the economy underwent rapid change. Since 1981, however, Brazil's economic performance has been poor in comparison to its potential. The country's dramatic reduction in output growth, which averaged an annual GDP growth of only 1.5 percent over 1980-93, reflected its inability to respond to the events of the late 1970s and 1980s. Some events that took place during this period were: the oil shock, increases in real interest rates, the debt crisis, and the resulting cutoff of foreign credit and foreign direct investment.These shocks, in combination with poor management of public finances and heavy state intervention, resulted in large fiscal deficits at state and federal levels. Even if the fiscal deficits were reduced after 1990, deviating policies generalized indexation, and exchange rate management contributed to keeping inflation high and increasing. Monthly inflation skyrocketed from 3 percent in the late 1970s to 50 percent in mid-1994. The country's income distribution, already poor, worsened drastically in the 1980s. Against these conditions, the success of the Real Stabiliz
The economic experience of the 1980s served as a contribution to Brazil. Government is much less likely to be seen as a solution, and many more Brazilians see the public sector as the problem. The somewhat tiresome debate between the monetarists and the structuralists that dominated discussions of inflation in the 1970s has been superseded by recognition that more supply growth does have a close relation to inflation, but that the essential problem is the fiscal deficit that drives the money supply process. The external shocks of the 1980s have also shown Brazilians that their country cannot be isolated from the rest of the world. By the early 1990s, Brazil was on the path to becoming more open to trade than it had been for several decades. Despite the loss of Brazilians access to world capital markets in the early 1980s, external capital was beginning to return to Brazil by the early 1990s. http://www.latin-focus.com/countries/brazil/brazil.htm The authorities had targeted a positive balance in the operational account of the consolidated public sector budgeted in 1995, but the final result was an estimated operational deficit of 5 percent of GDP. This was caused by a substantial rise in federal and state wage bills and high interest payments on the public debt (DuQuette 40). Expansion of 3.9% in 2000 (compared with 0.8% in 1999) will be led by exports and private investment. This will more than offset another year of public-sector austerity. Also, a recovery in wages, declining interest rates and an expansion of bank credit will encourage private consumption, although this will lag behind the other drivers of growth. Industrial production grew in February for the fifth time in seven months, the first time Brazil has posted such a broad expansion since late 1997 (LaitnFocus) Stock Market (ytd in US$-terms in %) - 31.6 20.2 -43.0 66.9 -11.4 31-May-00 Inflation (PPI, annual variation in %) 6.4 8.1 7.8 0.6 28.9 17.0 Apr-00
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Approximate Word count = 2014
Approximate Pages = 8 (250 words per page double spaced)
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