Brazil has an economy that is ranked seventh largest in the world as per the 2015 statistics. A normal gross domestic product gives Brazil a high parity of purchasing power with an identification of being the largest economy in the Latin America. The growth of Brazil’s economy is however mentioned to decelerate at times and liquid growth often goes down. The service sector in the economy of Brazil is the largest component, and it is followed by the industrial sector. Agriculture is at 5.5% of the Brazilian economy with labor force estimated to be 10% of the agricultural occupation. There are performances that input agriculture as a distinct trade balance in the economy of Brazil. The population, therefore, grows steadily with an increase of two percent every year with the agricultural stability. Brazil can expand agribusiness in its complexity and have more importance in the economic sector. Agriculture can however only be expanded at the expense of Brazil’s environment; the Amazon included. Rural producers are given importance in the shape of agriculture and raising of cattle with the use of programs that are geared towards influencing the farmer to more productivity. Economic pioneers of Brazil are most of the leaders in manufacturing products to what they are used for consumption. Foreign markets act as the twenty-five percent of this economy. Most of the exports are from Brazil including cellulose, soybean, beef, chicken and other agricultural products. The industrial sector in Brazil is ranked the second largest in America. This comes about with the availability of most multinational businesses that enhance the sector to grow steadily. There are extensive mineral resources that are extensive, and their grades are sufficient enough to give an economic stability. Energy in Brazil has involved the country into ambitious programs in order to reduce the high dependence on petroleum that is imported. A lot of importation has been taking place and the country really wants to have its own petroleum energy. Hydroelectric power from available rivers is sufficient to give enough energy for the country, and most importation would not take place. Brazil has a sustainable economic growth that is promoted by consistent transparency. The country’s transparency is ranked at the level of seventy-fifth positions, and this is according to the Transparency International. Mergers, acquisitions, and entrepreneurship rock positively with most activities being a good profit making the center. Most adults in Brazil engage in entrepreneurship, and this is positively ranked in the global economy at 27%.
The Brazilian economy has shown some stagnation from the start of this decade. This prompted the Brazilian president to unveil an economic stimulus program that was aimed at injecting a sum of 66 Billion US dollars into the Brazilian economy and this was to be used to fund the improvement of transport infrastructure over a period of about twenty-five years. The GDP had grown by a percentage of 7.5%, but the economy remained stagnant at about 2%.This was a very worrying trend as it put at risk the sustainability of the achievements that had been made during the previous decade. From the turn of the millennium under the leadership of President Luiz. There had been witnessed a great growth in the growth of consumer boom and commodity exports. This was occasioned by an increase in the global demand for commodities from Brazil that saw an increase in the export levels and with this resulted in a significant growth in the economy. The GDP OF Brazil continued to show tremendous growth from the year 2003 all the way through to the year 2008 when there was now a decline in the growth of the GDP that had been occasioned by a financial crisis that was global in nature (Dilma, 2013 ). However, the country was able to shake off this setback and return to significant growth of the GDP by mid-2009. The fact that the country was able to shake off the effects of global financial crisis and bounce back to economic growth made Brazil attractive to international investors and this saw a renewed surge of foreign investments in the country. There was also the hype that had been caused by the country being named to host 2014 world cup and there after 2016 Olympic Games. All these healthy indicators of the economy were due to the fact that during this period the country had a low level of external debts, there also existed flexibility of the exchange rate and also the fact that the country was able to maintain a high reserve of dollars. All the robust economic activities of this period made Brazil outwardly looks as to be thriving but the true state of matter was that the economy was beginning to suffer, and the fact that there was a global economic meltdown did not make the situation any better.
Currently, the Brazilian economy is facing its worse challenges in many years. The global economic meltdown wiped out the many gains that the country had made. The cost of basic commodities has been on the rise; inflation has also been on the rise, and the country has increasingly become less attractive to foreign investors. To address the situation the government has instituted a raft of measures such as engaging in the devaluation of its currency leading to a regional currency war. A currency war is a situation in which a number of countries go out of their way to deliberately engineer the depreciation of the value of their currencies so as to stimulate the growth of their economies. This practice is significant when several countries do it simultaneously. A strong currency is usually not in all cases in the best interest of the country as happened to Brazil. A weaker domestic currency, on the other hand, makes the exports of a nation more competitive in the global market and makes imports more attractive. This situation will make exports more attractive increasing exports from the local market and by discouraging imports the local consumers will be more encouraged to consume local products leading to the growth of local manufacturing industries. All these result in growth for the economy in the short term. However devaluation of the currency does not always necessarily solve all the economic problems. In the case of Brazil, the Real has depreciated by a margin of 48% from the year 2011. This is steep currency devaluation, but it has not been able to bring a solution to the Brazilian economy, as there are problems such as the plunging of the price of crude oil and also the prices of commodities. There is also the problem of deeply entrenched corruption. All these have seen a continued contraction of the Brazilian economy despite the devaluation of their currency. Currency devaluation has also been seen to lead to lowering of productivity in the long run as it makes the importation of machinery too expensive and this often occurs when the devaluation of the currency is not accompanied by proper structural reforms as in the case of Brazil. In Brazil, it also led to currency vitality that eventually pushes out foreign investors who are important in the growth of any economy (Monthly Review, 2015).
Capital control refers to any given measures that a government takes, its central bank or any other regulatory body takes so as to limit the flow of foreign capital into or out of their domestic economy. These controls usually come in the form of tariffs, legislations, taxes among others. The capital controls usually affect different classes of assets such as bonds, foreign exchange, and equities. Capital controls are a common economic practice in emerging economies that are characterized by lower capital reserves and more currency volatility (Dilma, 2013). The globalization that has led to the integration of financial markets of many nations has led to the easing of capital controls. Globalization leading to opening of a country’s economy to foreign capital gives companies a chance to access capital more easily, and this leads to an increase in the demand for the domestic stocks of a country. After the global financial crisis of 2008 during the recovery, there was an experienced capital inflow from the emergent economies. Brazil, for example, adopted capital controls by imposing a tax on the purchase of different financial assets by foreign investors. Proponents of capital controls see it as representing a macro-prudential policy that ends up reducing the financial crisis risk in a country. There has also been established an increase in the rate of economic growth in a country during the period of capital controls as compared to when there are no controls. Capital control has also been seen to make domestic capital more affordable to government and other investors, and residents of a country are discouraged by the controls from owing foreign assets hence they plough their capital locally. In developing economies such as the Brazilian economy, the control of capital inflows guards against inflation since most of the inflows are often in the form of foreign debt.
The Brazilian economy just like the other emerging economies has felt the effects of the global financial crisis. There has been a success in some sectors and some worrisome trends in others. Under the rule of President Luis, the country has been able to widen its internal market and this has been achieved through policies that raised the minimal wage, was able to transfer income to the poor and increase availability of credit to low and medium economic status citizens. There has also been a reduction in the rate of taxation and all these measures have enabled Brazil to survive the worse economic crises of the recent times (Monthly Review, 2015). There has also been a deliberate effort by the government to maintain a market-driven exchange rate, and this has been done with the aim of maintaining a high primary fiscal surplus and hence keep the inflation rates at a low level. This has seen the country attract foreign investors that seek higher returns for their investments. The increased inflow of foreign currency has been a major handicap to the Brazilian economy by pushing interest rates up and also increasing pressure on the currency. It has also seen a deterioration in the balance of trade with the citizens shifting to the exportation of primary products such as fresh farm produce especially soybeans. There has also been an increase in the level of private-public participation in an effort to keep the expenses of the government low.
Conclusion and Recommendations
Dilma Rousseff, 2013.Brazil’s Enigma: Sustaining Long – Term Growth, Harvard Business School. 9-713-040
Monthly Review, Strength and Fragility of the Brazilian Economy, 2015, Volume 67, Issue 01 (May) obtained from http://monthlyreview.org/2015/05/01/the-strength-and-fragility-of-the-brazilian-economy.