NCPA - National Center for Policy Analysis

Slow Progress In Brazil

May 17, 1997

Economists say that Brazil is one of those countries for which they have high hopes; but they are often disappointed in its progress. Change and improvement, when they come, often come slowly in this nation which boasts the world's eighth largest economy.

Now, observers say that President Fernando Henrique Cardoso, a former Marxist turned social democrat, has carried forward or improved upon the policies of his predecessors.

  • Brazil's economy is opening up, inflation is finally under control and a huge privatization plan is underway.
  • Although Brazil's 14 percent average tariff remains high by the standards of wealthier countries, it has fallen considerably over the past decade and Brazilians have developed a taste for the delights of imported goods.
  • An example of the privatization push is the attempt to sell to private investors a $3.2 billion controlling stake in the Companhia Vale do Rio Doce, the state-owned mining and transportation conglomerate.
  • Last year's 10 percent rate of inflation was the lowest since the 1950s.

Greater price stability has enabled firms to plan for the medium term and longer. The country's new currency, the real, is strong and monetary policy is relatively tight. But the country's fiscal stance is seen as lax -- leading critics to question how long these competing policies can last.

Over the next two or three years, the federal government and the states will sell assets -- such as telecoms and electricity businesses -- worth perhaps $50 billion.

Foreign direct investment in Brazil stood at $9 billion last year, but could reach $15 billion this year.

Experts say Brazil must increase its exports -- which represent just 7 percent of gross domestic product and are lower than India's -- while tightening up its loose fiscal policies, if it wants progress to continue.

Source: "Reforming Brazil," Economist, May 17, 1997.


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