Economy of Brazil

According to the CIA World Factbook, Brazil has the ninth largest economy in the world at purchasing power parity as of 2006. Brazil has a diversified middle income economy with wide variations in levels of development. Most large industry is concentrated in the south and south east. The north east is traditionally the poorest part of Brazil, but it is beginning to attract new investment. Brazil embarked on a successful economic stabilization program, the Real Plan (named for the new currency, the real; plural: reais) in July 1994. Inflation, which had reached an annual level of nearly 5,000% at the end of 1993, fell sharply, reaching a low of 2.5% in 1998; it was 6% in 2000. Brazil successfully shifted from an essentially fixed exchange rate regime to a floating regime in January 1999.

Macro-economic trend

This is a chart of trend of gross domestic product of Brazil at market prices estimated by the International Monetary Fund with figures in millions of ruling currency.

Year Gross Domestic Product US Dollar Exchange
1980 7,846,331 52.69
1985 1,436,276,926 6,197.34
1990 31,759,773 68.30
1995 646,192 0.91 Reals
2000 1,101,253 1.83 Reals
2005 1,930,335 2.43 Reals

For purchasing power parity comparisons, the U.S. Dollar is exchanged at 1.24 Reals only.

The Cardoso administration introduced to Congress a series of constitutional reform proposals to replace a state-dominated economy with a market-oriented one and to restructure all levels of government on a sound fiscal basis. Congress has approved several amendments to open the economy to greater private sector participation, including the involvement of foreign investors. By the end of 2003, Brazil's privatization program, which included the sale of steel and telecommunications firms, had generated proceeds of more than $90 billion. Passage of the Fiscal Responsibility Law in mid-2000 improved fiscal discipline at all three levels - federal, state, and municipal - and all three branches of government. Some measures have been adopted to address large deficits in Brazil's pension programs, but more remains to be done. Tax reform - simplification - has been under debate for over 2 years, but there has not yet been sufficient closure for final legislative action. Despite fiscal austerity, the administration has acknowledged the need to invest more in education and health to redress social inequity.

Market opening and economic stabilization have significantly enhanced Brazil's growth prospects. Brazil's trade has almost doubled since 1990. U.S. direct foreign investment has increased from less than $19 billion in 1994 to an estimated $35 billion through 2000. The United States is the largest foreign investor in Brazil. Upcoming privatizations in the power and banking sectors will likely elicit strong interest from U.S. firms.

Agriculture and forestry

Brazil is endowed with vast agricultural resources. There are two distinct agricultural areas. The first, comprised of the southern one-half to two-thirds of the country, has a semi-temperate climate and higher rainfall, the better soils, higher technology and input use, adequate infrastructure, and more experienced farmers. It produces most of Brazil's grains and oilseeds and export crops. The other, located in the drought-ridden northeast region and in the Amazon basin, lacks well-distributed rainfall, good soil, adequate infrastructure, and sufficient development capital. Although mostly occupied by subsistence farmers, the latter regions are increasingly important as exporters of forest products, cocoa, and tropical fruits. Central Brazil contains substantial areas of grassland with only scattered trees. The Brazilian grasslands are less fertile than those of North America and are generally more suited for grazing.

During the dictatorship period, agriculture was neglected and exploited as a means of resources for the industry sector and cheap food for the urban population. Until late 1980s export and prices were controlled, with quotas on exports. This has changed since the early 1990s.

Brazilian agriculture is well diversified, and the country is largely self-sufficient in food. Agriculture accounts for 8% of the country's GDP, and employs about one-quarter of the labor force in more than 6 million agricultural enterprises. Brazil is the world's largest producer of sugarcane and coffee, and a net exporter of cocoa, soybeans, orange juice, tobacco, forest products, and other tropical fruits and nuts. Livestock production is important in many parts of the country, with rapid growth in the poultry, pork, and milk industries reflecting changes in consumer tastes. On a value basis, production is 60% field crop and 40% livestock. Brazil is a net exporter of agricultural and food products, which account for about 35% of the country's exports.

Half of Brazil is covered by forests, with the largest rain forest in the world located in the Amazon Basin. Recent migrations into the Amazon and largescale burning of forest areas have placed the international spotlight on the country and damaged Brazil's image. The government has reduced incentives for such activity and is beginning to implement an ambitious environmental plan - and has just adopted an Environmental Crimes Law that requires serious penalties for infractions.


Brazil has the most advanced industrial sector in Latin America. Accounting for one-third of GDP, Brazil's diverse industries range from automobiles, steel and petrochemicals to computers, aircraft, and consumer durables. With the increased economic stability provided by the Plano Real, Brazilian and multinational businesses have invested heavily in new equipment and technology, a large proportion of which has been purchased from U.S. firms.

Brazil has a diverse and sophisticated services industry as well. During the early 1990s, the banking sector accounted for as much as 16% of GDP. Although undergoing a major overhaul, Brazil's financial services industry provides local businesses with a wide range of products and is attracting numerous new entrants, including U.S. financial firms.

The Brazilian government has undertaken an ambitious program to reduce dependence on imported oil. Imports previously accounted for more than 70% of the country's oil needs but now account for about 33%. Brazil is one of the world's leading producers of hydroelectric power, with a current capacity of about 58,000 megawatts. Existing hydroelectric power provides 92% of the nation's electricity. Two large hydroelectric projects, the 12,600 megawatt Itaipu Dam on the Parana River - the world's largest dam--and the Tucurui Dam in Para in northern Brazil, are in operation. Brazil's first commercial nuclear reactor, Angra I, located near Rio de Janeiro, has been in operation for more than 10 years. Angra II is under construction and, after years of delays, is about to come on line. An Angra III is planned. The three reactors would have combined capacity of 3,000 megawatts when completed.

Proven mineral resources are extensive. Large iron and manganese reserves are important sources of industrial raw materials and export earnings. Deposits of nickel, tin, chromite, bauxite, beryllium, copper, lead, tungsten, zinc, gold, and other minerals are exploited. High-quality cooking-grade coal required in the steel industry is in short supply.

As of 31 December 2005, there were an estimated 3,304,000 broadband lines in Brazil. Over 95% of the broadband lines were via DSL and the rest via cable modems.

Economy - overview

Possessing large and well-developed agricultural, mining, manufacturing, and service sectors, Brazil's economy outweighs that of all other Latin America countries and is expanding its presence in world markets. In the late 80s and early 90s, high inflation hindered economic activity and investment. The Plano Real, instituted in the spring of 1994, sought to break inflationary expectations by pegging the real to the U.S. dollar. Inflation was brought down to single digit annual figures, but not fast enough to avoid substantial real exchange rate appreciation during the transition phase of the Real Plan. This appreciation meant that Brazilian goods were now more expensive relative to goods from other countries, which contributed to large current account deficits. However, no shortage of foreign currency ensued because of the financial community's renewed interest in Brazilian markets as inflation rates stabilized and memories of the debt crisis of the 1980s faded.

The maintenance of large current account deficits via capital account surpluses became problematic as investors became more risk averse to emerging market exposure as a consequence of the Asian financial crisis in 1997 and the Russian bond default in August 1998. After crafting a fiscal adjustment program and pledging progress on structural reform, Brazil received a $41.5 billion IMF-led international support program in November 1998. In January 1999, the Brazilian Central Bank announced that the real would no longer be pegged to the U.S. dollar. This devaluation helped moderate the downturn in economic growth in 1999 that investors had expressed concerns about over the summer of 1998. Brazil's debt to GDP ratio of 48% for 1999 beat the IMF target and helped reassure investors that Brazil will maintain tight fiscal and monetary policy even with a floating currency.

The economy grew 4.4% in 2000, but problems in Argentina in 2001, and growing concerns that the presidential candidate considered most likely to win, leftist Luis Inacio Lula da Silva, would default on the debt, triggered a confidence crisis that caused the economy to decelerate. During his first year as president, in 2003, President da Silva decided to take an austere approach to the economy by controlling inflation and seeking current account surpluses in order to meet Brazil's debt obligations. This strategy caused a GDP decrease during 2003, but helped the country to attain robust GDP growth of 5.2% during 2004. The country paid off its IMF debt pre-schedule on December 29 (2.04 billion) and December 30 (13.46 billion), 2005.

For several decades, Brazilian development was based on an import substitution strategy. The main economic problem in the 1980s was enormous inflation.

In 1990, after a few years of an informal and slow opening of the economy, the country has made some dramatic changes, strongly reducing the import tariff and emphasizing the need for quality (read ISO 9000 series adoption).

In 1994, the Real Plan successfully eliminated inflation, after many failed attempts to control it. As a result, Brazilian purchasing power has dramatically improved. Almost 25 million people turned into consumers "overnight". Consumer good imports have grown very fast in recent years. Companies, realizing the business opportunities, increased their investment in Brazil and slowly the import pattern has changed from consumer goods into machinery and other capital goods.

Other statistics

Investment (gross fixed): 19.8% of GDP (2004 est.). Household income or consumption by percentage share: lowest 10%: 0.7%, highest 10%: 48% (1998), Distribution of family income - Gini index: 60.7 (1998), Agriculture - products: coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus; beef; Industrial production growth rate: 6% (2004 est.).

Electricity: production: 339 TWh (2002), consumption:351.9 TWh (2002), exports: 7 GWh (2002), imports: 36.58 TWh; note - supplied by Paraguay (2002). Electricity - production by source: fossil fuel: 8.3%, hydro: 82.7%, other: 4.6% (2001), nuclear: 4.4%.

Oil: production: 1.788 million barrel/day (2004 est.), consumption: 2.199 million barrel/day (2001 est.), proved reserves: 13.9 billion barrel (2004 est.). Natural gas: production: 5.95 billion m3 (2001 est.), consumption: 9.59 billion m3 (2001 est.), exports: 0 m3 (2001 est.), imports: 3.64 billion m3 (2001 est.), proved reserves: 221.7 billion m3 (2004).

Current account balance: $8 billion (2004 est.). Exports - commodities: transport equipment, iron ore, soybeans, footwear, coffee, autos. Imports - commodities: machinery, electrical and transport equipment, chemical products, oil. Reserves of foreign exchange & gold: $52.94 billion (2004 est.). Exchange rates: reals per U.S. dollar - 2.167 (2006), 2.303 (2005), 2.9249 (2004), 3.0771 (2003), 2.9208 (2002), 2.3577 (2001), 1.8301 (2000)

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