Economy of Brazil

Current events

After decades of high inflation and several attempts to control it, Brazil embarked on an economic stabilization program, the Real Plan (named after the new currency it's introduced, the Real) in July 1994, during the Itamar Franco administration. The inflation rates, which had reached an annual level of nearly 5,000% at the end of 1993, fell sharply, reaching a low of 2.5% in 1998. The passing of the Fiscal Responsibility Law in 2000 has improved the fiscal discipline of the local and federal governments, albeit in detriment of much needed investment in infrastructure and improvement of social services.

During the Fernando Henrique Cardoso administration (1995-2002), the government led efforts to replace a state-dominated economy with a market-oriented one. The Congress has approved several amendments opening the economy to greater private sector participation, and fostering the involvement of foreign investors. By the end of 2003, Brazil's privatisation program, which included the sale of steel, electricity and telecommunications firms, had generated proceeds of more than $90 billion.

In January 1999, the Brazilian Central Bank announced that the Real would no longer be pegged to the U.S. dollar, which entailed a major devaluation of the Brazilian currency. The economy grew 4.4% in 2000, decreasing to 1.3% in 2001. In 2002, growing speculation that the presidential candidate considered most likely to win, Luis Inácio Lula da Silva, would default on the debt, triggered a confidence crisis that caused the economy to decelerate. However once elected Lula resumed the economic policies of his predecessor. In 2003, President Lula took an austere approach to the economy by controlling inflation and seeking current account surpluses in order to meet Brazil's debt obligations.

After a GDP increase of 0.5% in 2003, Brazil showed robust growth in 2004 of 4.9%, decreasing to the pace of 2.3% (2005); international economic growth and, consequentially, expansion of exports, contributed to this performance.

Major issues

The economy still has serious challenges to face and important reforms are still to be implemented. Serious problems involving poor infrastructure, income concentration, low quality public services, corruption, social conflicts and government bureaucracy persist and threaten to hamper economic growth, compared to other emerging countries.

The internal public debt has reached the all time record and public expenses have been increased. Taxes already represent a considerable part of national income and are a serious burden to all social classes, diminishing opportunities for investment. In addition, enterpreneurship is burdened by high licensing costs and complex authorization processes.

Current economic growth is above that of comparable Latin American countries and of China and India. Brazil has dropped 11 positions on the WEF Growth Competitiveness Index ranking from 2003 to 2005.

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