The Economy of Brazil

Abstract From the time Brazil was founded in the 1500s by Pedro Alvares Cabral, that country has had its economical ups and downs. Some of the first exports from Brazil was brazilwood, sugar, gold, coffee and rubber; all of which would boost the economy at first and then would fizzle out. In the twentieth century, the government got involve with the economics of the country and tried to make improvements to the country’s infrastructure and tried to get the country not so dependent on being a commodities exporter. With multiple scandals in the government and corruption around every corner, the people became untrusting of the government.

With inflation going sky high, Brazil adopted the Real Plan. Later, in the 21st century, the economy was turned around and growing at an incredible rate. In 2013, protest plagued the nation that was sparked with an increase in bus fares, designed to pay for education, health care and infrastructure. Instead, the middle class people are getting stuck with the bill to build multiple stadiums for the World Cup and the Olympics. The Economy of Brazil: Brazil’s Early Economic History Brazil’s economic history can be summarized as an economic roller-coaster ride spanning a few hundred years.

Brazil’s first export was actually the product that gave Brazil its name in the early 1500s, Brazilwood. Allen wrote “brazilwood (often known simply as “brazil”) is a tropical hardwood of the family Leguminosae whose core yields a brilliant red pigment ideal for dyeing cloth. ” This new found product, first found by Pedro Alvares Cagral, was the source of a long competition between the Portuguese and the French. In 1567, the French were told to leave Brazil by their governor general. Shortly after that the Portuguese were the only people allowed to extract brazilwood from Brazil.

Allen added, “not long after Portugal had begun its colonization efforts in earnest the informal “terra do brasil” or “land of brazilwood” was simplified as “Brasil” and made the official name of the Portuguese New World possession. ” The export of this product topped-out just prior to 1600 and then, Allen concluded, suffered a rapid “decline due to over-harvesting and the decimation of the native population by disease and mistreatment. ” The export of brazilwood came to a complete halt by 1875 because the use of other material were used as a dye cloth and other materials instead.

Sugar was the next big export that also started in the 1500s. Brazil was the main producer of sugar until the 1700s, where the French and British were able to capitalize in the sugar market in other countries that had climates to support. Brazil’s sugar plantations took a pretty big hit when slavery was ended. Another reason Brazil’s economy did not see big effects is because most of the profits were sent back to Portugal and the Portuguese did not want Brazil to start any type of industry that could potentially hurt Portugal industries.

Gold rushes became one of the booms for the Brazilian economy starting around 1698 through the early 1700s. Watkins stated, “These gold rushes were the classic examples of boom and bust. Often the the intial development was in the form of small scale panning operations. The winners would take their fortunes out of the area. Usually their prosperity did not spread in the local economy because the gold rushes were in isolated areas where the only people there were garimpieros.

Even if entrepreneurs had been present they would have been reluctant to invest capital in an area that could not sustain economic activity for very long. Thus there were no “spread effects” from the gold rush. ” Coffee and rubber were the other two important export materials that provided an uplift and then a collapse for the Brazilian economy. First, coffee took off in the second half of the nineteenth century and created huge economic growth spurt in Brazil around the city of Sao Paulo.

Watkins added, “There came a bust to the coffee boom as a result of the glut on the market resulting from the headlong expansion of coffee plantations. But this was a different problem from the busts to the gold booms resulting from the exhaustion of the deposits. This came, at least in part, from the four years between the planting of a coffee tree and its production of coffee beans. Planters typically based there planting decisions on past prices and these were sadly out of date when new production came onto the market. ” Rubber was found to be very useful and the rubber tree was only available in the Amazon region.

The latex extracted from the rubber trees were exported everywhere because of the vast uses of rubber and Brazil’s economy felt the positive and profitable affects. Watkins concluded, “But the rubber boom eventually ended. The high price of rubber stimulated the search for alternative sources of rubber. A British citizen smuggled seeds of the rubber tree out of Brazil and they were taken to Southeast Asia where they were planted. In Southeast Asia where rubber trees have no natural enemies they can be grown in plantations, thus reducing the cost of collecting the latex.

” The rubber bust would still have happened even if rubber trees were not being grown in Asia because of the high prices associated with the production of rubber. The Twentieth Century Economy “The Brazilian government in the 20th century attempted to diversify the country’s production and reduce its dependency on agricultural exports by strongly encouraging manufacturing. ” “A first surge of industrialization took place during the years of World War I, but it was only from the 1930’s onwards that Brazil reached a level of modern economic performance.

In the 1940’s, the first steel plant was built in the state of Rio de Janeiro at Volta Redonda with US Eximbank financing. ” One of the problems with the government getting involved with the business side of the house was that the government, being concerned with the economy and the growth of its country, was also concerned with other aspects of government, such as political gains and social improvements. With this being said, it seems that there may have been a conflict of interest within the Brazilian government during this time of growth.

“The government’s growing involvement in the industrial sector was criticized for promoting political and social objectives rather than economic ones and for its cumbersome and inefficient bureaucracy; however, some industries attributed their successes to government measures, which included direct investments, tax and other incentives, protective tariffs, and import restrictions. ” During the growth spurt in the mid twentieth century, the government worked on improving the country’s infrastructure and “the annual Gross National Product (GNP) growth rate for Brazil was among the highest in the world averaging, until 1974, 7.

4 percent. ” With Brazil’s economy on the rise, it attracted the attention from other prominent countries like the United States and Japan. These other prominent countries saw an investment opportunity to invest in Brazil. “In the early 1980’s, however, the significant rise in US interest rates began to affect international capital markets, ending the favourable conditions to foreign indebtedness that prevailed until then. A substantial increase in interest rates in the world economy forced Brazil, as well as other Latin American countries, to implement strict economic adjustments that led to negative growth rates.

” With the negative growth rates in Brazil, the inflation rates started to rise and it also prevented Brazil from making investment of its own. Towards the end of the 80s, the government tried to stabilize the inflation rates by taking measures that would slow things down a bit and try to reverse the effects of being in debt. One of these measures was to institute a price freeze on everything in the country which helped with inflation and another was to stop adjusting wages compared to the current inflation.

By the very end of the 80s, the country seemed to have stabilized and the economy even started to grow ever so slightly once again. In just a short amount of time, the country was growing with investments being made in their country, then the economy dropped to a point that the country could not afford its debt that it had acquired and then starting to grow again and being able to take care of its debt. This is indeed a roller-coaster riding country because these past few ups and downs were within a decade’s time frame.

The country was still struggling with inflation into the 90s when they really buckled down to work on economic reforms that could help bring down inflation. “Economic reforms continued through the 1990’s and included such measures as the abolition of state monopolies, reduction or elimination of trade barriers in goods and services as well as of subsidies, in line with Brazil’s obligations as member of the WTO. ” In 1990, Brazil got a new president, Fernando Collor who, “campaigned for economic growth, modernization, and eliminating government corruption and inefficiency.

” Once Collor was in office, he and his administration failed to make the changes they said they would make which did not improve the situation in Brazil. According to , “Collor’s government failed to improve the economy and was consumed by a corruption scandal in mid-1992. Millions of dollars from influence peddling had flowed into the president’s secret bank accounts. ” Shortly thereafter, Collor’s vice-president, Itamar Franco, assumed the office of president after Collor resigned due to a certain pending impeachment.

As a result of the scandal of the former president, an investigation was launched. The investigation uncovered more problems within the government which increased the amount of distrust and lack of confidence the people had for their government. While Franco just getting started in office, income wages continued to plummet at the same time inflation sky-rocketed to an amazing 2,700 percent. As stated by : “Franco appointed as finance minister Fernando Henrique Cardoso, who put forth the Real Plan, a financial program partly inspired by a successful Argentine plan.

The program stopped the government from periodically raising prices (a practice known as indexing inflation), introduced a new currency (the real) and an exchange rate that was partially linked to that of the U. S. dollar, and called for curbs on government spending. The Real Plan succeeded without severely limiting economic growth, and Cardoso’s resulting popularity encouraged him to run for president; many regarded him as a dynamic, modernizing leader in the mold of Kubitschek or Vargas who would guide the country through shifts in the global economy while simultaneously resolving domestic crises.

Cardoso won the election by a wide margin over Lula, the perennial leftist candidate. Policies enacted during his first term (1995–99) permitted strong economic growth while lowering the annual inflation rate even more dramatically—from nearly 1,000 percent in 1994 to less than 20 percent within a year and nearly zero by 1998. The political parties backing Cardoso’s policies won a majority of the 1996 municipal elections. ” For the next several years, the economy continued to grow, except in 1998 when Russia and Asia had some financial issues.

The Recent Economy

During the past decade, Brazil has had a government that focused on keeping inflation from shooting up, reducing unemployment and raising amount of money workers would earn. As for the new president, his “major priorities of his administration included reforming social security, pension, and tax policy, combatting hunger and poverty, and enhancing educational opportunities, particularly for poor children. ” With the reforms that have been put into place, Brazil has had a superb ten years of economic growth. In 2006, the president, Lula, “enacted reforms to increase public investment and control spending.

Agricultural and mining operations persistently expanded, and foreign investors and major trading partners showed renewed interest in the country. ” From the Corbett Report, James Corbett wrote the following: “Oh what a difference a decade makes. Ten years ago, few had any inkling of the economic marvel that was about to befall Brazil. Since 2003, nearly 40 million Brazilians were lifted out of poverty, joining the ranks of the middle class and buying consumer items like televisions and cars for the first time. This in turn spurred more economic growth culminating in a 7.

5% GDP growth rate in 2010 that was the country’s best economic performance in 25 years. At the end of the decade, Brazil was a country transformed, and by 2012 it had overtaken the UK to become the world’s sixth largest economy. ” So for the first ten years of the 21st century, Brazil has been a superstar in the world of economics topping out with an impressive 7. 5% GDP in 2010. But since 2010, Brazil’s economic growth, though still on the positive side, has been declining. What has changed since 2010? In 2010, Brazil changed presidents, Dilma Rousseff, Brazil’s first female president.

I don’t think this has anything to do with the decline in the economy, but as the president, she will probably be at fault. One of the events that may have started this decline was completely out of her hands. “Shortly after taking office at the beginning of January 2011, Rousseff was confronted with one of Brazil’s worst natural disasters in decades: torrential rain created flash floods and mudslides that left thousands homeless and killed more than 500 in several mountainside communities just north of Rio de Janeiro. ” In 2011, the GDP was at 2. 7% and fell even further in 2012 to . 9%.

The big question at hand is what can be done to stop this trend and turn it around. Brazil’s Economic Freedom Miller, Holmes, Roberts and Kim explains the statistics of Brazil, “Brazil’s economic freedom score is 57. 7, making its economy the 100th freest in the 2013 Index. Its score is 0. 2 point worse than last year, with gains in freedom from corruption and fiscal freedom offset by declines in labor and monetary freedoms. Brazil is ranked 19th out of 29 countries in the South and Central America/Caribbean region, and its overall score is below the world average. ” The 2013 Index of Economic Freedom reports the

following for Bazil. The Rule of Law is still having issues because of corruption in the government and property rights have gotten slightly better. There is however, still a problem with copyright protected property being stolen. Government spending has been somewhat stable with the overall taxes about one third of the GDP, public spending about one third and the public debt has not changed either. The business, labor and monetary freedoms were down this year compared to last year. Trade freedom, investment freedom and financial freedom remained fairly stable for the year.

Recent Economic Events in Brazil In early June, Fiho reported the “an autonomist non-party organization that has been active in the country for several years led a small demonstration demanding the reversal of a recent increase in public transport fares in the city of Sao Paulo, from R$3 to R$3. 20. ” This increase in bus fares equaled to . 09 USD. That seems like a very small amount of money, and to many people it is. The demonstrators were criticized by the press and eventually physical force was used on the demonstrators by the police.

The people, being fed up with many issues that they blame the government for, returned the following days in larger crowds, “the police responded with increasing brutality, beating up demonstrators and passers-by indiscriminately, and wounding several journalists. ” Fiho also reported that “in two weeks, the demonstrations had exploded in size while also spreading across the country. They attracted well over one million people in hundreds of cities. ” From that point on, the demonstrations continued across the country and were not just about the increase in bus fares.

Many of the issues, Fiho tells, were “about a whole range of issues, among them public services (for); FIFA, the 2013 Confederations Cup and the 2014 World Cup (against); gay rights and the legalization of drugs (mainly for, but most churches are against); compulsory voting (mostly against); abortion and religious issues (all over the place); public spending, privatizations and the state monopolies (unclear); president Dilma Rousseff and the Workers’ Party (Partido dos Trabalhadores, or PT) (strongly against), the return of military rule (an ultra-right-wing pipe-dream), and, especially, corruption (against which everyone can happily march together). ”

But what is at the heart of these demonstrations is the frustration the people feel because of the corruption within the government and that the government is letting things of importance to the people go by the wayside. Gupta summarizes the issue rather well in a Time World article, “protesters’ grievances are united around a common theme: social inequity. They decry a political culture marked by corruption, a general lack of a return on high taxes, and point to inadequate government upkeep and spending on infrastructure, education and healthcare. ”

To go along with the government’s lack of good stewardship of the nation’s resources, the number of billionaires in Brazil has gone up considerably in the past year. This is a slap in the face to the people of Brazil because it is the middle class that is paying for it with the increases in taxes and things like the increase if bus fares. In fact, Schmidt & Cuadros reported that “former Sports Minister Orlando Silva said in 2007 that no public money would be necessary to finance the construction of new and refurbished stadiums for the World Cup. Amid delays and cost overruns, the government now expects to provide 6.

4 billion reais ($2. 8 billion) in financing for 12 arenas, some of which are in less populous, remote cities. ” Things I Would Do To Improve Brazil’s Economy Improving Brazil’s economy is a lot easier said than done. That can be said for every economy around the word. The first thing that I would do, if it were even possible, is to clean up the government. Many of the protestor’s issues root from the corruption within the government. The ideal government would be a government that would not accept bribes to gain personal gains and would keep the nation’s best interests in mind for every decision made every day.

In addition, the new government would be required to provide a balance budget that would maximize efficiency and effectiveness with the resources the government has. The infrastructure, health care and education would be at the top of the list to fix. When I say fix, I mean make changes to or completely rebuild these areas, especially education because education is what builds nations. By having an educated younger generation, is the key because this younger generation is going to produce the leaders of tomorrow.

Also, if we education our own replacements, we may be able to eliminate future sensitive issues like immigration. The next order of business would be to take as much government out of the “business” aspect of the country. By doing this, I would let businesses take care of the business and let the government take care of the government. I would promote economic freedom because, as stated in the Highlights of the 2013 Index, “vibrant and lasting economic growth is achievable only when governments adopt economic policies that increase individual choice and opportunity, empowering and encouraging entrepreneurship.

” Economic freedom provides a healthier economy and higher pay for workers. I will conclude with a statement made in the Highlights of the 2013 Index “Countries with higher levels of economic freedom enjoy higher levels of human development, including better education and more comprehensive health care. They live in cleaner environments and do a better job of making the most efficient use of energy and other natural resources. ” References Allen, C. (2010). Brazilwood: A Brief History. Retrieved 2013, from University of Minnesota:

https://www.lib. umn. edu/bell/tradeproducts/brazilwood Brazil Since 1990. (2013). Retrieved 2013, from Encyclopedia Britannica: http://www. britannica. com/EBchecked/topic/78101/Brazil/272268/Brazil-since-1990#ref951812 Brazil: The Economy. (n. d. ). Retrieved August 04, 2013, from Encyclopedia Britannica: http://www. britannica. com/EBchecked/topic/78101/Brazil/25089/The-economy Brazilian Economy. (n. d. ). Retrieved August 04, 2013, from Embassy of Brazil in Wellington: http://www. brazil. org. nz/page/brazilian-economy.

aspx Corbett, J. (2013, March 19). Putting the “B” in “BRICS”: Brazil in the 21st century. The Corbett Report. Retrieved August 04, 2013, from http://www. corbettreport. com/putting-the-b-in-brics-brazil-in-the-21st-century/ Fiho, A. S. (2013, July 15). The Mass Protests in Brazil in June-July 2013. (Socialist Project) Retrieved August 04, 2013, from GlobalResearch: http://www. globalresearch. ca/the-mass-protests-in-brazil-in-june-july-2013/5342736 Gupta, G. (2013, June 18). Brazil’s Protests: