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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
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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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