Factors that have enabled Brazil to become a rapidly developing economy.

Topics: Macroeconomics, Brazil, Economics Pages: 9 (3629 words) Published: November 10, 2013
INTRODUCTION

Brazil is the largest country in the South American continent, and it is amongst the 12 largest economies of the world. It possesses vast natural resources and offers remarkable ecological diversity, majority of its 192 million inhabitants now live in urban areas (Griffiths, A and Wall, S. p 609). The country also possesses a diversified industrial and agricultural sector and In 2001, the contribution of the agricultural sector to GDP was 9.3%, while that for industry and services was 33.9% and 56.8% respectively (Pereira, L 2004). At around the same time, Jim O’Neill, the head of global economic research at Goldman Sachs, coined the acronym “BRICs” to refer to Brazil, Russia, India, and China, the emerging market economies (EMEs) he thought would lead world economic growth for the next fifty years (Griffiths, A and Wall, S. p 594). This essay aims to identify and critically evaluate the key economic, political and technological factors and conditions that have enabled Brazil to become a rapidly developing economy. According to Antoine W. Van Agtmael (1981) the term emerging markets can be broadly defined as nations in the process of rapid growth and industrialization using economic liberalization as their primary engine of growth. Often times, these nations are transitioning to an open market economy with a growing working age population.

1. POLITICAL BACKGROUND
In order to understand why brazil is an “emerging market” we must first look at what went wrong, why it needed changing and what spurred the change. Brazil’s economic story is long and complex, after achieving its independence from Portugal in 1822 it had the lowest GDP per capita of any new world colony and It wasn’t until the early twentieth century when the economy began to show signs of life. From 1913 - 1980, Brazil grew faster than any other country in the western hemisphere thanks to high commodity prices and industrial production spurred by government spending programs (Williams, S. 2011), however the country wasn’t able to sustain that level growth and it stopped in 1983 as a result of it defaulting on its foreign debt. The Junta military regime and the imports - substitution policies (ISI’s) they implemented at that particular time (1965 - 1985) was squarely to blame for the debt as they had to borrow vast amounts of money to build the infrastructure (roads, ports, factories, etc.) necessary to support industrial production (Williams, S. 2011). In 1985 the regime finally stepped down and handed power over to a civilian government led the by José Sarney, but unfortunately he too was unable to control inflation and it resulted in country defaulting on its foreign debt again, the failure to reduce and or control inflation levels within its economy coupled with serious corruption allegations within congress resulted in a formulation of distrust towards the government ( Williams, S. 2011) . In 1989, Fernando Collor de Mello, a man who many credit for setting the stage for Brazil’s current growth became the nation’s first democratically elected president and unlike he’s predecessors, he quickly adopted a liberalised view on trade (Shikida, C 2005), however his government also failed to tackle the inflation problem as it reached record high of 7000% (inflation.eu . 2012). It took his successor Itamar Franco and the implementation of the ‘Real Plan’ written by next president Fernando Henrique Cardoso to get Brazil back on track.

2. PLANO REAL (THE REAL PLAN) AND ECONOMIC STABILITY
The main elements of the Real Plan included the introduction of a new currency ( the real ), the de-indexation of the economy (meaning prices were no longer pegged to the rate of inflation), the tightening of monetary policy and the floating of the currency, with a floor specified for its value against the dollar (Gustavo, F 1996). The design and implementation of the Real Plan distinguished it from the...

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