MEPP Brazil

8/3/2019 MEPP Brazil

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ECONOMY OF BRAZIL

SECTION C, GROUP-1ADITYA AGARWAL

AISHWARYA RAMAKRISHNANAVUTHU HARISH REDDY

NILADRI SAHASHEENY YADAV

SHREYANS GOLCHHA


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INTRODUCTION

7th largest economy by nominal GDP

8th largest by PPP

Avg. GDP growth of 5%

GDP of Brazilian ReaisR$3.1trillion($1.6 trillion)

Agriculture(5.80%)

Industry(26.80%)

Services(67.40%)


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0

5E+11

1E+12

1.5E+12

2E+12

2.5E+12

01-Jan-65

01-Jan-67

01-Jan-69

01-Jan-71

01-Jan-73

01-Jan-75

01-Jan-77

01-Jan-79

01-Jan-81

01-Jan-83

01-Jan-85

01-Jan-87

01-Jan-89

01-Jan-91

01-Jan-93

01-Jan-95

01-Jan-97

01-Jan-99

01-Jan-01

01-Jan-03

01-Jan-05

01-Jan-07

01-Jan-09

GDP current US$ Brazil::Value

GDP current US$ Brazil::Value


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0

500

1000

1500

2000

2500

3000

3500

01-Jan-81

01-Jan-82

01-Jan-83

01-Jan-84

01-Jan-85

01-Jan-86

01-Jan-87

01-Jan-88

01-Jan-89

01-Jan-90

01-Jan-91

01-Jan-92

01-Jan-93

01-Jan-94

01-Jan-95

01-Jan-96

01-Jan-97

01-Jan-98

01-Jan-99

01-Jan-00

01-Jan-01

01-Jan-02

01-Jan-03

01-Jan-04

01-Jan-05

01-Jan-06

01-Jan-07

01-Jan-08

01-Jan-09

01-Jan-10

Inflation

Inflation


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0

2

4

6

8

10

12

Jan-80

Jan-81

Jan-82

Jan-83

Jan-84

Jan-85

Jan-86

Jan-87

Jan-88

Jan-89

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Unemployment(% labor force)

Unemployment(% labor force)


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Stock Index(BOVESPA)


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Recession


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0

1

2

3

4

5

6

01-Jan-75

01-Jan-76

01-Jan-77

01-Jan-78

01-Jan-79

01-Jan-80

01-Jan-81

01-Jan-82

01-Jan-83

01-Jan-84

01-Jan-85

01-Jan-86

01-Jan-87

01-Jan-88

01-Jan-89

01-Jan-90

01-Jan-91

01-Jan-92

01-Jan-93

01-Jan-94

01-Jan-95

01-Jan-96

01-Jan-97

01-Jan-98

01-Jan-99

01-Jan-00

01-Jan-01

01-Jan-02

01-Jan-03

01-Jan-04

01-Jan-05

01-Jan-06

01-Jan-07

01-Jan-08

01-Jan-09

01-Jan-10

FDI

FDI


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0

10

20

30

40

50

60

70

80

90

Real interest rate % Brazil::Value

Real interest rate % Brazil::Value


10/18

0

50

100

150

200

250

300

350

400

Nominal Effective Exchange Rate Brazil::Value

Nominal Effecive Exchange RateBrazil::Value


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Before 1990

Balance of trade moved from an averagedeficit of US$3.4 billion (1974-76) to anaverage surplus of US$10.7 billion(1983-85)

1980s known as the "lost decade Increased government foreign borrowing

at higher interest rates Inflation accelerated as a result of a

combination of factors: exchange-rate devaluations growing public deficit increasing indexation of financial balances,

wages


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Contd.

The Cruzado Plan (1986) general price freeze wage readjustment and freeze readjustment and freeze on rents and mortgage

payments

ban on indexation freeze on the exchange rate.

Wage adjustments were too large, increasingaggregate demand excessively and creating inflationarypressures

Price freeze was temporary and created shortage ofvarious goods The public debt was enormous, and the government

was required to pay very high interest rates to persuadethe public to continue to buy government debtinstruments.


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1990-94

Hyperinflation 3000% annualinflation in 1993

Virtually bankrupt public sector

Set of reforms aimed at removingrestrictions on free enterprise,increasing competition, privatizing

public enterprises, and boostingproductivity.


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Plano Collor (Collors Plan)

Replacement of the existing currency, the CruzadoNovoby the Cruzeiro

Freezing 80% of private assets for 18 months extremely high tax on all financial transactions Indexation of taxes

Elimination of most fiscal incentives Increase in the prices charged by public utilities The adoption of a floating exchange rate Gradual economic opening to foreign competition Temporary freeze on wages and prices The extinction of several government agencies

(reduction of over 300,000 govt. employees) Stimulus of privatization and the beginning of economic

deregulation


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Plano Real (Real Plan)

Introduced a new currency called the real on 1 July1994 (cruzeiro real was substituted) Enacted a series of contractionary fiscal and

monetary policies, restricting its expenses andraising interest rates. The high interest rates

attracted enough foreign capital to finance thecurrent account deficit and increased the countrysinternational reserves.

Put a strong focus on the management of thebalance of payments,

at first by setting the real at a very high valuerelative to the U.S. dollar later (late 1998) by a sharp increase on domestic

interest rates to maintain a positive influx offoreign capitals to local currency bond markets,

financing Brazilian expenditures.


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Contd.

Converting salaries and a number ofother prices in the months preceding theimplementation of the Real Plan intoReal Value Units (URVs), which were

then linked to the USD(pegging) After July 1, 1994, prices in URVs were

converted into reais , which beganofficially at par with the dollar, but traded

at a premium in the open market. Prices and wages that previously hadbeen indexed to inflation were nowlinked to a foreign currency


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Post Plan Real

Expectations of an eventual depreciationof the currency led to a strongappreciation of the real and painfully highdomestic real interest rates.

International enthusiasm for the RealPlan led to the resumption of large-scaleflows to Brazil

Sharp increase in Brazil's reserves of

foreign currency(1995 - more thanUS$50 billion) Sales of consumer durables, especially

those purchased by lower-income

groups, increased significantly


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Documents

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