Introduction of Brazil:

Capital: Brasflia
Area: 8511965 KM2
Population: 170 million (2000)
Population growth rate: 1.4% (2000)
GNI per capita: U. S. 3570 (2000)
GNP per capita growth rate: 3.2% (1999-2000)
Population living on less than $1 per day: 9.0%
Agriculture as share of GDP: 9% (2000)
Exports as share of GDP: 9% (2000)
Illiteracy rate (age 15+): 15% (1999)
Human development index: 0.750 (Medium)(1999)

Brazil presents a classic example of problems associated with evaluating development progress. Over the
past four decades it has experienced periods of rapid economic growth as measured by GNP. Over the
same period problems of widespread poverty, rising unemployment, and extreme income inequality have
remained intractable.

Brazil occupies nearly half the total area of South America. About one-half of Brazil is covered by
forests. This includes the largest rain forest in the world. Brazil is the most populated country in Latin
America, with more than 170 million people in 2000. More than 75% of the population lives in urban
areas where growth has been very rapid. Brazil is unable to create enough jobs to absorb such a large
population. Consequently unemployment is high, and many people resort to activities such as street
vending, drug peddling and prostitution.

Income inequality in Brazil is one of the highest in the world. The poorest 20% of the Brazilian
population receives only 2% of the nation’s income, while the highest 10% receives 48% of the income
and the top 20% accounts for fully 64%. Brazil is one of the newly industrializing countries, today it
accounts for nearly 32% of GNP and 54% of exports. Agriculture sector incorporates 42% of Brazil’s
population, accounting for 8% of its GDP and almost 40% of its exports.

Following are the main issues:

Poverty:

In 2000 over 15 million Brazilians lived on less $1 a day.

Inflation:

Rapid inflation has been a persistent problem in Brazil. It was over 2700% in 1993 before declining
dramatically following major policy changes in 1994.

Declining Real Incomes:

Until recently, real incomes have been declining among Brazil’s middle and lower classes.

Foreign Debt:

The foreign debt in 1999 stood at $ 245.

Trade Balance:

In 1984, Brazil had a record trade surplus of $ 13 billion and this surplus turned into a $ 3.5 billion deficit
in 2000.
A Large State-owned Sector:

State-owned companies accounted for 8% of Brazil’s GNP and more than half the Govt. Budget deficit of
$ 150 billion in 1997.

Strict Import Barriers:

A stubborn refusal to recognize patents had until recently discouraged foreign investors. Tariffs on
imports are still relatively high in Brazil.

Environmental Damage:

Brazil’s pursuit of rapid growth at any cost has inflicted severe environmental damage. The world’s
largest remaining tropical rain forest and a critical preserve of global biological diversity. Yet the Brazil’s
served as the host country to the United nations Conference on Environment and Development as known
as the Earth Summit in June 1992.

Summary:

Some analysts argue that Brazil’s enormous resources will help it rectify some of its most pressing
Problems such as its huge foreign debt. It has mineral reserves, a large labor force and solid
industrial base. Therefore it has the potential to be one of the world’s largest markets. But without
the proper economic policies, there will be little improvement.

In 1991 a new government instituted numerous policy changes, including Administrative and Financial
reforms, designed to allow the economy to resume stable growth. To attract foreign investment, Brazil
also lowered tariffs on imports. In 1994 the Government instituted a new and more severe austerity
program known as the Real Plan. The plan was designed to attack the basic cause of inflation, the large
budget deficit, by increasing tax revenues, cutting back on government spending and maintaining a stable
currency.

The real plan was successful in reducing inflation from 600% to 10% between 1994 and 1997—the
lowest inflation rate since the 1950s. But alongwith the liberalization and privatization programs of
previous years, it caused the economy to weaken and the formal industrial sector to eliminate about one-
third of all jobs. Economic growth accelerated between 1995 and 1997 at a rate of almost 4%. It slowed
once again to 1.3% in 1998 as the Asian Economic crisis.

IMF put together a $41.5 billion rescue package for Brazil in November 1998. The 1st sign of trouble
with the IMF package appeared in early 1999 when the real lost over 30% of its value, the Governor
of the Central Bank resigned local and foreign investors sent huge sums of money overseas. A major
state Govt. temporarily suspended foreign debt repayments. And fear of renewed inflation became
widespread. What happens now to the lives of the poor and lower middle classes, who were the principal
victims of the 1994 austerity measures.