Giuliana Napolitano
São Paulo – One of the priorities of the current Brazilian government, elected at the end of 2002, is to increase country participation in international trade. The government is concerned with foreign trade due to the fact that Brazil, despite being the largest country in South America and having the most diverse economy on the continent, answers to less than 1% of all world trade.
This figure has been higher. In the 1960s, it was over 2%, but lack of consistent policies caused a drop in Brazilian export, and participation in international trade dropped as low as 0.86% at the end of the 1990s – one of the lowest levels in history.
In recent years, though, the Brazilian federal government has been working hard on reverting this picture. Tax breaks have started showing results. In 2002, for example, Brazilian export broke the US$ 60 billion barrier for the first time. This year, from January to October, foreign trade has risen 20%, and may end the year at over US$ 70 billion.
To present, albeit, the greatest cause for this increase bas been the exchange rates. Over 50% devaluation of the Brazilian real against the American dollar last year has made export from the country cheaper, effects which are still clear in 2003.
Businessmen have started pressing the government for specific export incentives. The previous government had already showed the results of this pressure, prospecting new markets for Brazilian products – especially Asia and the Middle East -, an effort which has now gained momentum.
Foreign trade with Arab countries, for example, has risen 73% between 2000 and 2002. In the case of the Asian block, this increase was almost 40% in the same period.
In recent months commercial missions and official visits, have been made to consolidate Brazilian presence on the international market. Internal measures have also been announced for the reduction of international trade bureaucracy, export tax, etc.
More than strategic, the target of increasing Brazilian participation in international transactions is a question of survival. In the past, for example, so as to pay external debts and not have a balance of payment crisis, Brazil had to make a US$ 30 billion loan from the International Monetary Fund (IMF). This risk is currently much lower.
GDP growth and inequality
With 170 million inhabitants, Brazil is the largest country in South America and has the most diverse economy on the continent. The country produces from agricultural commodities – a sector in which the country is one of the most competitive worldwide – to automobiles, mobile phones and airplanes.
Brazil has also been one of the countries with greatest economical growth over the last decades. A recent study by the Brazilian Institute for Geography and Statistics (IBGE), a government institution responsible for national statistics, has shown that, from 1901 to 2000, the Brazilian Gross Domestic Product (GDP) has increased one hundred times, and the per capita income has grown 11 times.
In the same period, the world GDP has had an expansion of little less than 19 times, and per capita income has grown five-fold.
This surprising growth, on the other hand, has not been sufficient to solve one of the largest Brazilian problems: social inequality. Instead of diminishing, as would be expected after such significant economic expansion, the pit between the rich and the poor has only been increasing in Brazil.
In 1960, the Gini index, used to measure the degree of income inequality in countries, was at 0.497 in Brazil – the index varies from 0 to 1, where 1 indicates the maximum possible income concentration, and zero indicates perfectly equal distribution. 30 years later, the index had risen to about 0,60.
According to the World Bank (International Bank for Reconstruction and Development – IBRD) and the United Nations (UN), Brazil is currently one of the most unequal countries in the world – losing only to five African nations: Namibia, Botswana, Central-African Republic and Swaziland.
The IBRD pointed out, whereas, that Brazil was one of the few countries in Latin America to show an improvement in income differences throughout the 1990s, however small: the Gini index dropped from 0.59 to 0.57 in the period.
The ghost of inflation
This improvement may be due to some economic changes made to the country. In 1994, for example, the Real Plan was put in place in Brazil, and the central objective was to eliminate inflation, which at one point in the 1990s was over 2.000% per annum.
Inflation was a chronic problem in Brazil for many decades. Between 1965 and 1994, the country cut nine zeros from the local currency. So as to try to control price increases, various economic plans were put in practice, some of them including price freezes, but none of them showed the expected results.
The first successful initiative was the Real Plan. So as to control inflation, the plan indexed salaries, prices and other contracts to a monetary unit pegged to the dollar. The Brazilian currency, which as from 1994 was called the real, was worth almost 1 dollar.
Regarding inflation, the results of this policy were the best possible: the figure fell from 2000% a year to around 15% in 1995, and did not reach the two figure value over the next years.
Foreign trade, on the other hand, was hit hard by a real at such high value. Exports dropped and imports shot up. In 1999, for example, Brazil internationally sold an equivalent to US$ 48 billion, just 3% over that registered in 1995.
Imports on the other hand rose by 50% in the first year of the Real plan, climbing to US$ 53.8 billion and reaching US$ 63.3 billion two years later. In 1999, the Brazilian government once again adopted fluctuation of exchange rates and, from then on, the country started showing positive trade balance results.
Market opening
In terms of import, exchange rates – fixed and at high value – were not the only cause for growth. Brazil had just opened the market to foreign investors, and had recently freed purchases abroad, after decades of state control.
With this, import rose in practically all sectors: from consumer goods to machinery and equipment. Many companies went broke during this process, and large numbers of analysts criticized the government for opening the market too fast, not giving the productive sector a chance to adapt.
The surviving companies, however, gained in competitiveness. The textile sector is a classic example of this turnaround: it was hit hard by the opening of the market, but managed to modernize and currently exports over US$ 1 billion worth of goods, mainly to the United States.
Diplomacy and commercial barriers
International trade has now become a central part of government agenda. One of the main fronts is the discussion of protectionism against international trading.
The strategy became clear during the last World Trade Organization meeting (WTO), which took place in Cancun, Mexico, in September this year. Brazil and India lead a group of more than 20 countries that were fighting for reforms in global farm trade.
This novel movement caused a reaction from the United States (US) and from the European Union (EU), both largely protectionist in this sector. The two groups stated that Brazil was responsible for the fiasco of the meeting. With pressure from the US and the EU, some of the Brazilian allies, among them Peru and Colombia, gave up their demands.
Brazil has also been wrestling with the US regarding the Free Trade Area of the Americas (FTAA), a free trade zone that would include all 34 countries in the Americas, except for Cuba, and is set to start operating in 2006.
Brazilian negotiators refused to accept North American requests – for the reduction of barriers basically in the service and government purchase sectors – while Washington does not reduce subsidies given to farmers.
At the end of September, in New York, Brazilian president Luiz Inácio Lula da Silva stated that if there are no changes in the agricultural area, negotiation of the FTAA might slow. There are doubts whether the original starting date schedule will be met.
Brazil is also part of Mercosur, the Common Market of the South, a customs union between Brazil, Argentina, Uruguay and Paraguay. The objective of this block, formed in 1991, is to create a common market, i.e., permit free circulation of capital and labor between the member countries.
Nowadays, as a customs union, there are no internal commercial barriers, and Brazil, Argentina, Uruguay and Paraguay have established a Common External Tariff (TEC) for transactions with other countries.
Official data shows that Mercosur represents around 60% of the South American GDP, or around US$ 1.1 trillion. Export has exceeded US$ 80 billion, and imports are around US$ 95 billion.
Services
More information on Brazil may be obtained from the following sites:
www.planalto.gov.br: official Brazilian government site
www.ibge.gov.br: official statistics
www.mdic.gov.br: Development, Industry and Trade Ministry
www.mre.gov.br: Foreign Relations Ministry
www.mercosul.gov.br: Mercosur
