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Brazil An Economy Recovering From Chaos

Brazil earned the reputation of being a "miracle economy" in the late 1960s when double-digit annual growth rates were recorded and the structure of the economy underwent rapid change. Since 1981, however, Brazil's economic performance has been poor in comparison to its potential. The country's dramatic reduction in output growth, which averaged an annual GDP growth of only 1.5 percent over 1980-93, reflected its inability to respond to the events of the late 1970s and 1980s. Some events that took place during this period were: the oil shock, increases in real interest rates, the debt crisis, and the resulting cutoff of foreign credit and foreign direct investment.
These shocks, in combination with poor management of public finances and heavy state intervention, resulted in large fiscal deficits at state and federal levels. Even if the fiscal deficits were reduced after 1990, deviating policies generalized indexation, and exchange rate management contributed to keeping inflation high and increasing. Monthly inflation skyrocketed from 3 percent in the late 1970s to 50 percent in mid-1994. The country's income distribution, already poor, worsened drastically in the 1980s. Against these conditions, the success of the Real Stabilization Plan in effect since mid-1994, which has reduced inflation to an annualized rate of about 15 percent, stand out noticeably. Growth rates were satisfactory in 1994 and 1995 at 5.8 and 4.2 percent, respectively (Page 45-47).
From Portugal's discovery in 1500 until the late 1930s, the economy relied on the production of primary products, such as sugar cane for exports. Portugal subjected it to a strict enforced colonial pact, or imperial mercantile policy, which for three centuries heavily restricted development. The colonial phase left strong marks on the country's economy and society, lasting long after independence in 1882. Significant changes began occurring only late…

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