Brazil Economy

Aaushi Sangai-11HR-002
Anirudh Lanka-11DM-061
Megha Madan-11DM-071
Sachin Pal-11FN-085
Sahil Gandhi-11FN-086
Sumeet-11DM162

Presented By:
Group-2
Some Vital Statistics
Area: 8.5 million sq. km. More than 2.5
times the size of India
Population: 190 million Less than 1/6
th
of
Indian population
Working Population: 101.7 Million
Literacy: 90.3% of adult population
Economy
GDP (nominal): $2.5 Trillion
GDP (PPP): $2.3 Trillion
Annual GDP growth: 3.5%
Contribution to GDP: Primary Sector 6%
Secondary Sector 28%
Tertiary Sector 66%
Trade Balance: $20 Billion surplus
Objective of the Study


To understand the macroeconomic policies and
study their implication on the Brazilian economy
in light of the various internal as well external
factors.
History of Brazil Economy 1968-73
Spectacular Growth spurned by 1964 reforms
11.1 Average Annual Growth Rate
Industry grows by 13.1% per annum
Leading Sectors:
Consumer Durables
Transportation Equipment
Basic Industries such as steel, cement etc.

History of Brazil Economy 1974-80
1973 oil shock leads to trade reduction
Large investments incurred by govt. to
increase exports and promote growth
This leads to a current account deficit which is
funded through foreign debt
Foreign debt rises from US$6.4 billion in 1963
to nearly US$54 billion in 1980

History of Brazil Economy 1990-Date
In the 1990s, the new populist govt. tried in vain
to curb inflation and boost economy
The Real Plan is introduced by the govt. and is
finally able to lower inflation
In 2000, there is GDP growth of 4.4%, in 2004,
5.7%, in 2005, 3.2%, in 2006, 4%, in 2007, 6.1%,
in 2008, 5.1%.
During the 2008-10 recession, there was no
growth expected in the GDP, but still the GDP saw
growth as high as 7.5% in 2010
GDP
The GDP growth (annual %) in Brazil was last
reported at 7.49 in 2010.
Major Sectors contributing to GDP
1. Agriculture
2. Manufacturing
3. Services
BRAZIL ECONOMY:A SNAPSHOT
Seventh largest economy in the world by
nominal GDP
Eighth largest by purchasing power parity
Free markets(Process determined by Supply
and demand)
Inward oriented economy

GDP Growth Rate Trend
GDP Growth Rate Trend
High Growth in 70s
Decreasing Growth Rate in the 80s & hence
Current GDP Growth Rate @ 7.5%
Expected to decrease to 6.6%
Brazil's economy decelerated this year due to tighter
monetary policy, including prudential measures to
control credit growth and a restrictive fiscal stance.
The manufacturing sector was hit by the strength of
the Brazilian Real until recently and the withdrawal of
stimulus measures
MONETARY POLICY
Brazil has opted to use interest rates as an
instrument to control inflation
This method of using interest rates is known
as an inflation-targeting regime
Cost of Capital is incredibly high as compared
to International Standards
The amount banks charge on their loans even
for very good rated companies is well above
what is charged worldwide
Monetary Policy Committee (Copom)
Since the adoption of the inflation-targeting
regime, Central Bank Policy has been based upon
some basic principles implemented by the
Monetary Policy Committee (Copom).
First, they evaluate the future trend of inflation.
Second, Copom attempts to analyze the reasons
for the differences between the inflation
projection and the target
Lastly, In order for the Central Bank to be able to
act with the necessary flexibility, it is essential
that its performance be totally transparent.

MONETARY POLICY
To increase GDP by increasing money supply
in the market(printing currency)-led to
HyperInflation
Implemented a reform policy known as Real
Plan or Plano Real

Fiscal Stability Program
Re-scheduling of state and local government
public debts;
Reform and privatization of state banks;
Reform in public accounting by recognition of
hidden liabilities;
Measures to control public debt/GDP ratio in
44%;
Increase in transparency of budget and public
finance
Contd
Request of Funds from IMF
The funds were used Government
Expenditures on Health,Education,Housing
The Fiscal Responsibility Act
Debt
In 1994-98, Brazil's domestic debt grew very
rapidly while remaining short in maturity
Brazil's domestic debt has posed two challenges
to policymakers: it has grown very fast and,
despite progress, remains extremely short in
maturity.
The main explanations: extremely high interest
payments (caused by Brazil's weak fiscal stance
and quasi-fixed exchange rate regime) and the
accumulation of assets (especially obligations of
Brazil's states).

Debt Management By Government
Establishment of Brazilian National Treasury
Refinancing risk at safe levels
Gradual reduction of market risks
Short Term Interest Rates
SLM Framework
New Brazilian Payment System
Brazil- Regulatory Environment
Legal system based on civil code.
Interpret the law on a case by case basis.
Courts do not necessarily have to follow the
same decision taken on previous similar cases.
Judges have freedom to take decisions.
System brings uncertainty in society and takes
time.
Outcomes unpredictable. At times, take
10years or even more.
Regulatory Environment(Cont.)
Impacts tax and labor rules.
Tremendous effect on business and corporate
relationships.
Strength of legal rights index reported at 3.00
in 2010.( 0=weak to 10=strong )
Regulatory Environment- FDI
Opening itself to foreign direct investment.
Cash inflow and outflow is easier.
Many sectors opened for privatization.
Huge impact on telecommunication, power
and banking in particular.
Slight dip in FDI at time of 9/11.
Growing steadily since 2004 when it was
$13bn.

Regulatory Environment- FDI(Cont.)
Huge market potential.
Strong existing industrial base.
Strong competition with China, India and
Russia.
Increases competition in the market.

Regulatory Environment- Some facts
Time required for operating license- 83.45days.
Total Tax Rate- 69.00% of profit.
Time to register property- 42days.
Time to enforce contract- 616days.
Time to start up a firm- 243days.
Brazil- Debt & its impact
Brady deal of 1994 restructured Brazils debt.
Helped Brazil return to international financial
markets.
Hyperinflation ended around the same time.
Not experienced open debt crisis in recent
years.
However, debt service indicators among the
worst in emerging markets.
Debt & its impact(Cont.)
Public external debt accounts 20% of GDP.
Interest payment on external reported at
1.00(% of GNI ) in 2008.
Central Government Debt reported at 60.88(
% of GDP ) in 2008.
Debt reached $320bn in 2011.
Govt. Role in Development of internal
Sectors
Health:
System of health care: Brazil has a public system
of medical coverage guaranteed by the Brazilian
Constitution called the Sistema nico de
Sade (SUS) that was created in 1989.
SUS Mission: 1) All citizens should have access to
health care.
2) All citizens are entitled to full and complete
health care.
3) All health care policies should aim toward the
reduction of inequality between individuals.

Health Care Challenges:
Funding is an inadequate hotch-potch.
violent urban slums where the service is
lacking.
Improvement:
Turning more public hospitals over to non-
profit bodies.
Allocate around 12 percent of its GDP to
health care
Facts:
Health care spending as a share of GDP: 8%.
Share of health care spending that is privately funded:
60%
Life expectancy at birth: 72.5 years
Infant Mortality Rate: 21.17 deaths per 1000 live births
Number of beds per 1,000 (global average): 2.4 (4.3)
Nurses per 1,000 (global average): 29.1 (60.3)
Physicians per 10,000 (global average): 16.9 (23.4)
Defense sector:
End of military rule in 1985
Secrecy surrounding the funding of various
military-related projects.
Among the countries with the lowest levels of
military expenditures implies few external
threats.
Largest military power in Latin America.
Military expenditure: is around 6% of govt.
expenditure.
As a % of GDP it is noted 1.94% in 2009.

Infrastructure:
Roads are the primary method of
transportation in Brazil of both passengers
and freight.
Highway system is inadequate and poorly
maintained.
The railway system in Brazil is very limited.
Brazil's air transportation is well developed
with 48 main airports, 21 of which are
international.
Infra Challenges and opportunities
The upcoming World Cup of 2014, and
Olympic Games of 2016
Country must continue to seek new ways to
attract private capital.
continues to invest heavily in the market,
providing almost R$274 billion for the period
of 2010 2013 (up 38% from 2005 2008).

Education Sector
Literacy rate of 97.5% for people age 6 to 14
Literacy rate of 84.1% for people age 15 to 17
Literacy rate of 92.0%
Govt. is spending around 5% of their GDP in
education sector and it is 16% of their total
expenditure.

Education Sector challenges
Public schools in Brazil are not well cared for.
Brazils first-grade repetition rate is 28
percent, among the highest in the world.
Initiatives:
A program that has created about 700,000
scholarships.
opened more than 180 vocational schools .
allocating 18% of the countries total budget to
education.
Export and Imports
First broad tariff reform was introduced in
1990.
An agreement forming a Common Market of
the South: Mercosur.
Present scenario: pollution intensive exports
in manufacturing.
Primary Partners for Exports and Imports:
U.S., China, Argentina, Germany etc.
Imports:
Country 1999 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010
Brazil 48.7 55.8 57.7 46.2 48.25 61 78.02 91.4 173.1 127.7 187.7
Imports contd.
Imports barriers before 1990.
Imports of goods and services (annual %
growth) in Brazil was reported at 18.49 in
2008
Fuel imports (% of merchandise imports) in
Brazil was reported at 19.82 in 2008 which
was more than 50% in 1980.
Manufacturing (% of merchandise imports) in
Brazil was reported at 70.22 in 2008 .


Exports:
Country 1999 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010
Brazil 46.9 55.1 57.8 59.4 73.28 95 115.1 137.5 197.9 153 199.7
Exports contd.
In 2005, Brazil's total exports more than
doubled to US$118 billion from $58 billion for
2001
trade surplus has expanded more than 16-
times to $47 billion from $2.6 billion over the
past 4 years.
world's leading exporter of sugar, coffee, beef
and orange juice and soybeans.
Exports contd.
Factors That May Increase Exports: Brazil is using only 1/3 of
potential arable land. The potential for expansion is three times this
amount. Rising incomes around the world contribute as well.

Factors That May Decrease Exports: Important markets in the
North America Free Trade Agreement and in East Asia are blocked.

The Future of Brazils Exports: Brazils efforts to improve sanitary
conditions will determine the future increases in meat exports.
Increasing demand for raw materials for bio fuels. Domestic food
consumption is also rising. This could reduce exportable surpluses.
Considerable growth in import spending and fast growth in Asia,
which together will further deteriorate the trade surplus.

FDI:
The Foreign Capital and Exchange Department (Decec)
of the Brazilian Central Bank (Bacen) is responsible for
foreign direct investment (FDI) in Brazil.

Foreign direct investment, net inflows (BoP, current US$)

FDI contd.
Started in 19 century, British direct
investments.
Improved in 20 century, due to urbanization
and industrialization.
Last few decades, attracted especially by the
large domestic market but also by
government policies .
FDI jumped four times since 2005 totalling
661bn.
Telecomm sector created boom in 1998-2001.


Active participant in the multilateral systems of
rules regulating the action of national states in
the economic, trade and political fields .
Traditionally a leader in the inter-American
community
Charter member of the United Nations
In 2009 became a creditor country to the
International Monetary Fund (IMF).
Brazil was a leader of the G-20 group of nations
International Linkages
Close relations with US for 200 years
Jointly Cooperate on trade issues, HIV/AIDS
efforts, regional concerns, and the international
peacekeeping operation in Haiti
Brazil and the United States signed an agreement
to promote and increase the worldwide trade in
ethanol as both are the top global ethanol
producers
Brazil and the United States cooperated in
principle on the creation of a Free Trade Area of
the Americas (FTAA)
Ties with US

Argentina is the main destination for Brazilian
investment in Latin America.
Brazil accounts for Argentina's largest export
and import market, while Argentina accounts
for Brazil's third largest export and import
market

Ties with Argentina
2009 2010
Argentine exports to Brazil $11.3 billion $14.4 billion
Brazilian exports to Argentina $12.8 billion $18.5 billion
TOTAL
$24.1 billion $32.9 billion
Two countries share similar perceptions on
issues of interest to developing countries
Trade is expected to to cross $ 10 billion mark
by 2012
Major Brazilian investments in India so far is
the joint venture-Tata-Marcopolo, between
Tata Motors and Marcopolo of Brazil
Relations with India
Instituted in the 1994, sought to break inflationary
expectations by pegging the real to the U.S. Dollar
Brazil floated the Real (BRL),breaking with decades of
exchange rate manipulation and repression by the
government
Inflation was brought down , but not fast enough to
avoid substantial real exchange rate appreciation
during the transition.
The Appreciation meant that Brazilian goods were now
more expensive relative to goods from other countries,
which contributed to large current account deficits
Plano Real
The National Congress of Brazil is the
legislative body of Brazil's federal government
The 1988 constitution grants broad powers to
the federal government, made up of
executive, legislative, and judicial branches
The president holds office for 4 years, with the
right to re-election for an additional 4-year
term, and appoints the cabinet.

Political Stability
Fifteen political parties are represented in Congress.
Party-switching is a long-running theme in Brazilian
party politics, So ,the proportion of congressional seats
held by particular parties changes regularly.
President LuizIncio Lula da Silva ( who took office on
January 1, 2003) has been credited with implementing
policies that promoted upward social mobility by
addressing inequality and raising living standards.
The country dramatically reduced the jobless rate from
a historic high of more than 13 percent that year to 6.7
percent in September 2010

Brazil is struggling with an image of corruption
that is aggravated by frequent scandals involving
high-level politicians and bureaucrats

The government wants more control over
resources and has very little desire to allow the
international community to profit from the
exploitation of the country's vast new oil frontier

The political economy that has evolved since
1994 across two two-term presidential
administrations has made it possible for Brazil
to re-position itself in the global arena

An overvalued currency is hurting Brazilian
exports and pushing up domestic prices. A Big
Mac now costs around $6.16 (1.5$ in 2003 )
compared to 4.07$ of US

The government wants more control over
resources and has very little desire to allow
the international community to profit from
the exploitation of the country's vast oil
frontier

Facts and Figures for Unemployment
Current Brazil unemployment rate is 5.8%.
It has come down from 9.3% in 2001.
Employment in agriculture was 28.6% in 1985
and 19.3% in 2006.
Employment in industry in Brazil it was reported
AS 21.4% in 2006 and 22.1% in 1985.
Employment in services in Brazil it was reported
as 49.3 % in 1985 and 59.1% in 2006.
The Employment to population ratio; 15+; total
(%) in Brazil was reported at 63.90 in 2008

Rate of Unemployment
Causes
Firstly, the period of higher economy growth for
Brazil was also a highly dynamic for the whole
world. So as the world saw huge growth in GDP
(especially BRIC nations), even Brazil grew.
(Exports/investments grew)
Secondly, since late 2007 the world economy has
been on decline due to the financial crisis
brought about by the US subprime market
(mortgages). This crisis only hit the Brazilian labor
market in the second half of 2008.

Government initiatives
Unemployment insurance
Public Employment Service
Training programs
Microcredit programs
Cash transfer programs





Poverty
Brazil is one of the most unequal nations in the world,
although it is one of the wealthiest.
According to the United Nations Development Program
(UNDP), income are as high as those of some very poor
African countries such as Sierra Leone, or Namibia.
However, the World Bank ranks the Brazilian economy
among the 10 richest in the world, with a Gross Domestic
Product (GDP) of $1.7 trillion PPP, equal to the Italian GDP.
Per capita GDP is in the order of $ 9,000 PPP.
Facts and Figures
Income share held middle 20% in Brazil is reported as
19.62% in 2008 and it is continuously in 19 % from last
10 yrs.
Income share held by lowest 20% in Brazil is 3.02% in
2008, increased from 2.45 in 2001.
Income share held by highest 20% in Brazil is 58.73% in
2008 and has decreased from 62% in 2000.
Percentage of poverty in urban population in Brazil is
17.5% in 2005.
Percentage of poverty in rural population in Brazil was
reported as 41% in 2005 and 51.4% in in 2000.

Poverty level from 90-09
Causes for poverty
Extreme inequality of land tenure.
High levels of illiteracy
Limited access to basic infrastructure and
services
Lack of access to water, credit and improved
technologies that would help boost
productivity.

Government initiatives
Plano Brasil Sem Misria (Brazil Without Poverty)
Bola Familia ( monthly cash transfers)
Brazil Without Misery ( monthly cash transfers to
rural poor)
New policies and programs have been introduced
to make land available to poor landless people
National Program for Strengthening Family
Farming