Development Essay - BRAZIL

Varun Mohapatra Economics SL/HL Macroeconomics

Development Essay

BRAZIL

Brazil is a country, which has great potential for development. Even though it has developed greatly, it still faces many problems. For example, even though Sao Paulo is one of the most heavily urbanized cities, the inequality of income is very evident. Brazil is an industrial power with the largest population Latin America and the Caribbean. Brazil has taken great steps to greatly improve its situation and come out of the shadow of several other industrial powers. It is quite evident by the way that Brazil is developing. Brazil is clearly a nation to be reckoned with.

Brazil is a country that has a history of conquest. It was under the rule of Portugal for three centuries. A Portuguese navigator, Pedro Alvares Cabral, first discovered Brazil in 1500. Soon after, the first settlers started arriving in Brazil. They encountered natives who did not know the language and they just worked the land. Many Portuguese migrated to Brazil in order to escape the poverty that plagued them. The migrated so that they could change their way of life and find jobs. This part of South America soon evolved into a center for commerce and wealth for the landowners. But this was not without consequence as this development made for the import of slaves from Africa to work in the many plantations. This slave trade brought diseases to the New World (the Americas) and to the slaves that could not adapt to the diseases already existing in Brazil.

Soon after, in 1807, Napoleon conquered Portugal causing the royal family to flee to Brazil. The king, Dom Joao, created a colony in Brazil and ruled it until things settled in Europe. He left his son, Don Pedro I as the new king in Brazil. But Don Pedro declared Brazil’s independence from Portugal later. Don Pedro I was against slavery even though he did not actively participate in eradicating it. Soon, in the 19th century, coffee started to substitute sugar as the main cash crop, due to the economics, the slave force and the competition between the Caribbean Islands. During this “coffee” revolution, Brazil became one of the most known countries in the world and brought immigrants from all over the globe.

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In 1889, the second emperor of Brazil, Dom Pedro II was deposed and a republic was proclaimed by Deodoro da Fonseca, called the United States of Brazil. From 1889 to 1930, the government was a constitutional democracy, with the presidency rotating between the states of Sao Paulo and Minas Gerais. This period ended with a coup d’etat that placed Get Lio Vargas in the presidency. Just as the change of power took place, in 1889, so did a change of power in 1930. Get lio Vargas ruled as dictator until 1945 and served again as president from 1951 to 1954. Vargas had a vision of how Brazilian politics could be shaped to support national development. He understood that with the breakdown of direct relations between workers and owners in the expanding factories of Brazil would lead to workers as a new political force. During his period of power, agricultural elites ended, new urban industrial leaders acquired power and the middle class began to gain strength.

In 1964, President Joao Goulart instituted policies that exasperated the elite of Brazil. He was overthrown by a military coup. The next five presidents were all military dictators. Censorship was imposed and much opposition was suppressed. In 1985, democratic presidential elections were held as the nation settled. Fernando Collor de Mello was elected president in 1989, But in 1992, Collor was charged with corruption and he resigned. The vice-president, Itamar Franco was sworn in as president. In 1994, Fernando Henrique Cardosa was elected president. He guided Brazil through many crises in the late 1990’s. But even then, there was inequality. For example, one out of four Brazilians continued to live on less than one dollar a day. All these problems helped Luiz Incio Lula da Silva, into the presidency in 2003.

Brazil has the tenth largest economy in the world with GDP of $588 billion (est. 2000). It is highly diversified with wide openings and variations in development. Most of the industry is based in the south and southeast. The northern part seems to be the poorest part of Brazil, but is being reshaped. The most important development plan that Brazil is undertaking currently is the “Real” plan, (named after the new currency) which started in 1994. The results are quite clear. Inflation, which had reached 5.00% at the end of 1993, fell sharply, reaching a low of 2.5% in 1998. Brazil successfully shifted from a fixed exchange rate to a floating exchange rate in January 1999.

By the end of last year, Brazil’s privatization plan, which included the sale of steel and telecommunications firms, had generated proceeds of more than $90 billion. Despite fiscal austerity, Brazil’s government has recognized the need to invest more in health and education to balance out social inequity. Economic stabilization has significantly enhanced Brazil’s growth prospects. Brazil’s trade has almost doubled since 1990. U.S investment has increased from less than $19 billion to approximately $35 billion through 2000. The U.S is the largest foreign investor in Brazil.

Brazil possesses vast agricultural resources and is largely self sufficient in food. There are basically two agricultural areas. The first is comprised of the southern half to two-thirds of the country. This region has perfect agricultural factors. It has a semi-temperate climate, higher rainfall, better soils, high technology use and adequate infrastructure. The second area is in the drought-ridden region to the northeast. Even though this region is mostly for self-sufficiency, it is slowly growing as an exporting region. Agriculture accounts for 8% of the country’s GDP and employs about one quarter of the labor force. 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 sections of the country, with rapid growth in the poultry, pork and milk industries. On a basis of value, production is 60% field crop and 40% of livestock. Agricultural and food products account for about 35% of the exports.

Brazil has one of the most advanced industrial sectors 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 “Real” plan. Brazilian firms have invested heavily in new equipment and technology, a large share of which has been purchased from U.S. firms. Brazil has a sophisticated tertiary sector too. During the early 1990’s, the banking sector accounted for 16% of the GDP. Although undergoing a major overhaul, Brazil’s financial services industry provides local firms with a wide range of products and is attracting numerous investors including U.S financial firms. The Sao Paulo and Rio de Janeiro stock exchange are undergoing consolidation and the insurance sector is about to privatized.

The government has undertaken a program to reduce the dependence on imported oil. Imports previously accounted for more 70% of the country’s needs but now accounts for only 33%. Brazil is one of the world’s leading producers of hydroelectric power, with a capacity of 58000 megawatts. Hydroelectric power provides approximately 92% of the nation’s electricity. Brazil also has a commercial nuclear reactor, Angra I, which has been in operation for more than 10 years.

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

This is a brief overview of Brazil’s economic status:

GDP: purchasing power parity - $1.057 trillion (1999 est.)

GDP: real growth rate: 0.8% (1999 est.)

GDP – per capita: purchasing power parity - $6150 (1999 est.)

GDP – composition by sector:

Agriculture: 14%

Industry: 36%

Services: 50%

Population below poverty line: 17.4% (1990 est.)

Household income or consumption by percentage share:

Lowest 10%: 0.8%

Highest 10%: 47.9% (1995)

Inflation rate (consumer prices): 5% (1999)

Labor force: 74 million (1997 est.)

Labor force – by occupation: services 42%, agriculture 31%, industry 27%

Unemployment rate: 7.5% (1999 est.)

Budget:

Revenues: $151 billion

Expenditures: $149 billion, including capital expenditures of $36 billion (1998)

Industries: textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel, aircraft, automobiles and other machinery and equipment

Industrial production growth rate: -2.6% (1999 est.)

Electricity consumption: 336.24 billion kWh (1998 est.)

Electricity exports: 0 kWh (1998 est.)

Electricity imports: 41.5 billion kWh (1998 est.)

Agriculture products: coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus, beef

Exports: $46.9 billion (1999 est.)

Exports – commodities: manufactures, iron ore, soybeans, footwear, and coffee

Exports – partners: U.S. 23%, Argentina 12%, Germany 10%, Japan 5%, Italy 5% (1999 est.)

Debt – external: $200 billion (1999 est.)

Economic aid – recipient: $1.012 billion (1995 est.)

Currency: 1 real = 100 centavos

Exchange rate: reals (R$) per US$ - 1.804 (January 2000), 1.815 (1999), 1.161 (1998), 1.078 (1997), 1.005 (1996), 0.918 (1995)

Brazil has achieved dramatic results in improving living conditions:

Infant mortality declined from around 48 per 1000 live births to 31 per 1000 in 2000.

Net enrolment in basic education rose from 84% in 1991 to more than 95% in 1999.

Brazilians with access to an improved water source rose from 73% of the population in 1986 to 87% in 2000.

Brazil has truly achieved what many countries still seek to achieve. But that is not the end for the country. Brazil is still embarking on projects such as improving health, rural development, water access and education. Most importantly, Brazil has succeeded in decreasing the number of HIV/AIDS deaths by nearly 50%. What they probably need to do is to lower barriers to foreign investors and aim to increase exports. The outstanding debt is also a bit of a problem to Brazil’s development. There are many improvements that can be made that could help Brazil to become an industrial power. Their revenue is increasing gradually and that does not seem to be the problem. Their currency is also quite strong. But the main improvements that have to be made are in the standards of living. Sao Paulo has high crime levels and very poor transportation. The main improvements that need attention are water treatment, water access, transportation and crime. But at the rate at they are developing, it would only be a short time before they are one of the major industrial powers. An article from India Today predicts that Brazil will have the second highest GDP in the world by the year 2050. That seems to be fiction, but Brazil has the capacity to do so.

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