Inflation in BrazilInflation in BrazilInflation in BrazilBrazil, the largest country in South America and the fifth largest country in the world, has an economy that has been one of boom and bust. Its development has been determined in succession by the world demand for sugarcane, rubber, and coffee. The country began a drive to develop its vast resources and to industrialize. Nevertheless, Brazil is still a primarily an agricultural country, with severe economic problems.
From Portugals discovery in 1500 until the late 1930s the economy relied on the production of primary products, such as sugar cane for exports.Portugals colonial phase left strong marks of the countrys economy and society, through the late 1800s. After the late 1800s, many significant and structural transformations took place, changing Brazils economy into a more modernized industrial economy. These transformations were particularly strong up until the economy experienced difficulties. However, the country still had the potential to regain its former dynamism. In the mid-1990s it had a large and quite diversified economy, but one with considerable structural, as well as short-term problems.
Brazil has experienced one of the highest growths rated among capitalist economies in the twentieth century. This observation is particularly true for the period ranging from the early1950s to the mid-1990s, despite the crisis that lasted throughout most of the eighties (called the lost decade) and into the early 1990s. A first assessment of the countrys economic performance in the period can be made by noting that the yearly GDP growth rates averaged 7.15 percent in the fifties, 6.12 percent in the sixties, 8.84 percent in the seventies, 2.93 percent in the eighties, and 1.60 percent in the years 1990-95. For a comparison, one should note that the United States economy grew at a yearly average rate of 3 percent in the period 1960-92.
Throughout the 1980s and the early 1900s, Brazil suffered from both inflation and economic stagnation. This contrasts with most advanced industrial economics, where long periods of stagnation have usually been accompanied by either no or very low rates of price increases. Brazils stagflation comes as no surprise since both the inflation and stagnation can be interpreted as different manifestations of the same disproportion. Since 1981, Brazils economic performance has been poor in comparison to its potential. The countrys 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 were: the debt crisis, the oil shock, increases in real interest rates, 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 the 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 59 percent in the mid-1994.
In the 1970s and 1980s, the higher investments/GDP ratios reflect an emphasis on industries with the greater capital-intensive technologies (such as capital goods production) and a large amount of investment in infrastructure projects, which use up a huge amount of capital relative short-term output. Also to be noted is the decline of investments in the 1980s and the early 1990s, which is even clearer when measured in constant 1980 prices.
Another characteristic of Brazils industry that has emerged over the decades is its high degree of concentration. In the 1980s the share of the eight largest firms total sales was 62 percent in transport equipment, 64 percent in pharmaceuticals, 100 percent in tobacco, 60 percent in printing and publishing, 72 percent in chemicals, 54 percent in beverages, and 81 percent in rubber. The average for the industry as a whole was 52 percent.
The large fiscal deficit, debt, and high interest rates also had a profound impact on resource allocation and economic growth. There was an increasing allocation of credit to the government, as the financial system became less and less an intermediator of resources to the private sector and increasingly a facilitator of the transfer of savings to the public sector. For instance, in 1980 the private sector received 74 percent of total credit, the rest going to the public sector. In 1990 this composition had changed significantly, as the private sector received only 47 percent and the public sector, 53 percent. The rising amount of funds placed in the financial rather than in the productive sector implied a decline in economic activity. In the
A more positive reflection of the dynamic development of the economy in the past 10 years is the fact that the number of people having access to durable and safe assets – such as real estate, a house, or a nest egg – increased from about 20 million in 1960 to about 60 million in 1980, up from about half in the 1960s.[18] This has led to an increase in property ownership. Property has become safer, cleaner, and more attractive to households and to business because it is more easily owned. Although property may, in theory, be cheaper, they are used more frequently for construction or construction-related purposes.[19] The increase of property ownership in the past 10 years in the financial sector has led to a massive economic recovery, increasing the average annual income of households by about 21 percent and the share of economic growth from real income to gross domestic product by 4.6 percent.[20] In 1990, the share of economic growth from GDP to gross domestic product in the United States was only 5.2 percent.[21] A combination of lower economic data and higher government investment in education is the underlying mechanism, which can significantly encourage and encourage growth in investment and economic growth in the United States. This has also been the primary source of employment growth, which has increased over twenty-twentieth of the fifty-five hundred job creation jobs created during the 1990s.[22] The number of people employed in manufacturing, construction, energy, and healthcare decreased in the 1950s during the Bush administration and the recession. This decrease of employment has been offset by reductions in labor force participation and increase in household incomes.[23] The growing availability of employment-based unemployment insurance in 2007 led to a slight increase in the number of working-age people in the labor force during the recession. These two trends, however, have not directly affected aggregate economic activity. The share of manufacturing and construction has increased under the Bush Administration; more and more of the unemployed are employed. There is a net increase in the number of employed in manufacturing and construction; this has resulted in a smaller number of full-time low-wage workers.[24] While this has happened in other developed countries, most of the new foreign investment has not yet materialized in the United States. A recent Brookings Report on the Growth of the U.S. Economy showed that this expansion in foreign investment has stalled over the last ten years. In 2012 China increased its capital spending on infrastructure over this period; but only one of this investment has been from the United States.[25] Furthermore, the size of the investment flows for defense and infrastructure have stagnated. Instead, the U.S. has become the third-largest economy in the world, after Japan — with many of its most important industries in this region, and with a vast number of emerging markets within Europe, North America, and Asia. The rise of a rising Asian economy in the 1990s, coupled with the recent surge in export and defense spending has created a strong argument for the need for greater U.S. investment in foreign policy