Brazilian Economy: and perspectives. Ambassador George Monteiro Prata

Transcription

1 Brazilian Economy: formation, overview and perspectives Ambassador George Monteiro Prata

2 Introduction Brazil is among the largest countries in terms of territory, population and GDP 6th largest GDP: US$ 2,5 trillion (2011); Continental country: 5th largest area, 8,5 million km2 ; 5th largest population: 194 million people

3 Brazil and the World Surface: more than 5 million km² Population: more than 150 million GDP: higher than US$ 1 trillion

4 General Info Brazil has vast natural resources, including recently discovered large offshore oil fields, a diverse industrial base, a dynamic and sophisticated private sector, and a well-structured public sector ; Brazil is a vigorous democracy, with free multiparty elections and a stable political system ; Brazil has good relations with all its neighbors and has increased its ties with all regions of the world; Brazil is not only a rising economic power, but has also made major strides in its effort to raise the population out of poverty. In the last 15 years, almost 25 million people left the poverty ranks;

5 Presentation scheme I Economic Formation of Brazil II Overview of Brazilian Economy III International Trade Relations

6 I Economic Formation of Brazil

7 Settling 1500 Discovery episode of Europe's commercial expansion; First 50 years extraction of Pau-Brasil (Brazilwood) relative disregard for new land due to lack of gold/silver (contrary to Spanish lands); After 1550 effective territorial occupation consequence of political pressure from other countries (mostly France); Without gold necessity to find economic activity that justified defence of the land;

8 The Sugar Cycle ( ) In the second half of the XVI century, Portugal started a sugar industry in Brazil; Success of the sugar industry was an important factor in guaranteeing the continuous Portuguese domination of Brazilian territory even after decadence of Portugal in the XVII century; Sugar industry defined the initial geography of colonization (mainly coast and NE), the mode of production (slavery) and the model of insertion (agroexporting economy); Decadence: Dutch establish a competing industry in the Caribbean (late XVII century);

9 The Gold Cycle ( ) By the end of XVII century, just when sugar was in decadence, the Portuguese found gold in the center of Brazil; The discovery of gold changed the dynamic center of the colony to the south, and later provoked the change of capital to Rio de Janeiro; Gold extraction had a great expansion in Brazil, but the cycle was short, and by 1780 production was already minimal; Sugar production still persisted, and a new crop was developing, which would determine Brazilian economy until the XX century;

10 The Coffee Cycle ( ) During the XIX century, Brazil became the world's biggest exporter of coffee; Production was based in slavery and, later, immigration; Brazilian development remained externally-oriented exports were the only source of dynamism consumer and capital goods were mainly imported; Coffee was so important that in the XX century gov. intervened to defend it against price falls with devaluation and purchase of stocks; 1930s coffee crisis NYSE crash (lower demand) + overproduction;

11 Import Substitution Process Coffee crisis led to devaluations and protectionism, which made difficult to import goods and dislocated demand towards domestic production; From the 1930s conscious effort to stimulate industrial development through more devaluations, multiple exchange rates, high custom taxes for imports; As a result, economic dynamic centre changed from foreign to domestic demand; Problems: tendency to excessive state participation, high income concentration, few sources of financing;

12 Plano de Metas ( ) Until 1950s industry mainly produced nondurable goods; Targets Plan (J. Kubitschek): provided for the establishment of industries of durable and intermediate goods through a series of projects with specific goals, culminating with a new capital (Brasilia); Between 1955 and 1962, industry of transports grew 711%, and of electric goods 417%; Middle 60s: high inflation, crisis of populist model, military coup;

13 The Brazilian Miracle From 1968 to 1973, Brazil grew, in average, 10% yearly; Causes: new infrastructure projects, demand for durable goods, civil construction, export growth, high foreign demand; Consolidation of industry of capital goods; Economic growth legitimated military government; Oil crash (73) dilemma: adjustment or further growth? Expecting a short crisis, goverment chooses growth financed by foreign debt; Brazil still grows appr. 6% yearly;

14 Debt Crisis and the Lost Decade 1979 Rise of international interest rates. Brazilian debt skyrockets Mexican default - crisis of confidence in LA; By the beginning of 1980s, Brazil attempts to adjust economy to more restrictive circumstances Government implements restrictive measures to force trade surplus. People demand democracy; New problem: hyperinflation. Series of heterodox plans, focused in price controls; The same pattern (high debt, low growth) applied to virtually all Latin America the lost decade ;

15 Plano Real and estabilization In 1993, a new plan was implemented aiming at taming inflation: The Real Plan Defeated inflation by creating a new unit of value (URV) which absorbed all inflationary movements while maintaining its reference value regarding goods (superindexation) In 1994, URV officially became a new currency Real which was purged of the inflationary inertia of the previous currency; Other important steps: fiscal adjustment, high interest rates, privatizations, parity to dollar;

16 Plano Real - crisis With crisis in Mexico, Asia, Russia and Argentina, Brazil became target of speculative attacks; With low reserves and consecutive trade deficits, Brazil requested the aid of IMF (98, 2001 and 2002) and allowed currency fluctuation; New macroeconomic principles: fluctuating currency, inflation targets, primary superavit; The Real Plan had the merit of controlling inflation and modernizing the economy, but between 1993 and 2002, with the exception of the first three years, Brazil always grew below the world average;

17 Lula da Silva ( ) First leftist government, was initially distrusted by investors; Had to commit to maintaining macroeconomic policy ( Letter to Brazilians ); Focused on income redistribution, creation of new consumer class and export expansion; Favoured by a boom in the commodity sector produced by the Chinese expansion; Creation of new middle class that sustained country during crisis;

18 II Overview of Brazilian Economy

19 Executive Summary Macroeconomic and financial stability, sustainable economic growth and targeted social policies have all contributed to poverty reduction and better income distribution; Economic growth will accelerate throughout 2H2012 and 2013 and inflation is converging to target; Outlook is for sustainable economic growth over the coming years, with substantial investments, particularly in infrastructure;

20 Macroeconomic Policy Main features of the macroeconomic policy framework : -Inflation targeting -Fiscal responsibility -Exchange rate flexibility The macroeconomic fundamentals, combined with adequate prudential policy and strong bank supervision, resulted in: -Capacity to absorb internal and external shocks -Macroeconomic and financial stability -Sustainable economic growth -Credit and capital market development -Investment growth

21 Declining real interest rate

22 Inflation declining towards the center target

23 Commitment to fiscal targets

24 Declining net public debt

25 Robust international reserves

26 Strong external debt ratios

27 Declining poverty and inequality

28 GDP recovery

29 Favorable world comparison GDP forecast growth for 2013, in % per year - IMF

30 Unemployment rate at record lows

31 Real wages and real payroll are growing

32 IMF forecasts

33 Outlook for Brazil Sustainable GDP growth over the coming years; Social gains and expansion of the middle class; Demographic bonus until 2025; Major investment opportunities Offshore oil fields ( pre-salt layer) Vast reserves of mineral commodities Potential to expand cultivated area and agricultural production Expansion and upgrade of the infrastructure due to major international sports events Fiscal and tax reforms to eliminate distortions, simplify the tax system and reduce costs Reforms to boost investments and increase competitiveness

34 Growing middle class = expanding consumer market

35 Favorable demographics

36 Investment rate at a new level

37 A major recipient of FDI

38 Major infrastructure investments planned for

39 Oil reserves set to grow

40 Challenges of Brazilian Economy - Fiscal and Tax Reforms Public sector pension reform; Tax incentives for investments in ports, railroads and telecommunications networks; Payroll tax rate cuts; Reduction in tax burden and fees charged on electricity = significant reduction in costs; Simplification and reduction of overall tax structure (work in progress);

41 Challenges of Brazilian Economy - Reforms to increase competitiveness Private sector infrastructure concessions; Airports (4 auctioned) New concessions on transport infrastructure highways, ports, railways and airports Building a skilled labor force; Science without frontiers program thousand scholarships for undergraduate and graduate studies abroad Pronatec expansion of professional and technological education, totaling 8 million trainees over the next four years

42 III International Trade Relations

43 Political Context - a Global Actor Brazil is a member of theg20, group of 20 major economies that replaced the G8 as the main economic council of wealthy nation; Brazil is also one of the BRICS, a political organisation of leading emerging economies - Brazil, Russia, India, China and South Africa. As of 2012, the five BRICS countries represent almost half of the world's population, with a combined nominal GDP of US$13.7 trillions In international forums, Brazil struggles to prevent a financial tsunami from Europe and the US, which could damage developing countries;

44 Political Context - Brazil and South America South America is a priority of Brazilian diplomacy, and Brazil favours the processes of regional integration; In 1991, Brazil, Argentina, Paraguay and Uruguay established the Mercosur or Mercosul (Common Southern Market), an economic and political agreement created with the purpose of promoting free trade and the fluid movement of goods, people, and currency; Trade between Mercosur countries increased nine times over two decades; In 2008, the 12 South-American countries signed the Constitutive Treaty of UNASUR (Union of South American Nations);

45 Profile of Brazilian Foreign Trade Brazil is responsable for around 1,5% of world trade Main exports: transport equipment, iron ore, industrial raw materials, airplanes, soybeans, footwear, coffee, autos, automotive parts, machinery; Main imports: machinery, electrical and transport equipment, chemical products, automotive part and electronics. The primary trading partners of Brazil are the EU, China, United States and Argentina.

46 Trade Surplus Even with the negative effects of the global crisis, Brazil maintains a trade surplus; In 2011, Brazil had a surplus of USD 29.9 bi, up from 20 bi in 2010 (see below), and the biggest surplus since 2007;

47 Profile of Brazil-EU Trade EU is Brazil s leading trade partner, representing around 22% of Brazilian trade; On the other hand, Brazil is the 9 th most important market and supplier of the EU; Brazil is the 6 th biggest investor in the EU; Main exports: iron ore, coffee, soybean Main imports: machinery, electronics; Jan-Oct 2012: Exp - USD 41 bi (-8.4%), Imp USD 39.6 bi (+3,2%), Tot USD 80.6 bi (-2,06%); Crisis in Eurozone is reducing Brazil s traditional surplus with the EU (USD 6.3 bi in 2011 USD 1.4 bi until Oct 2012);

48 Profile of Brazil-Czech Trade Brazil is CR s main partner in South America; Brazil s main export products: meat, coffee, leather, metals, shoes; CR s main export products: parts of automobiles and airplanes, motors, fuel bombs; Statistical discrepancies explained by Rotterdam effect ; Both numbers agree on a record-high turnover in 2011, which might be repeated or surpassed in 2012 (data available until Sept); Last 3 years: both agree on a Brazilian deficit;

49 CZ-BR Trade Czech numbers (USD million fob) BRAZIL CR Jan-Sep Turnover 379,8 373,8 519,5 693,3 544,0 643,0 792,7 613,7 Exports 196,0 188,4 293,8 378,7 272,3 256,0 353,4 272,3 Imports 183,8 185,4 225,6 314,5 271,6 387,0 439,3 341,4 Balance 12,2 2,9 68,1 64,1 0,6-131,0-85,9-69,1 Brazilian numbers (USD million fob) BRAZIL CR Jan-Sep Turnover 273,2 286,5 335,0 445,6 373,8 520,3 611,1 448,3 Exports 57,4 49,0 60,4 67,2 43,2 48,0 63,3 48,5 Imports 215,8 237,5 274,6 378,4 330,6 472,3 547,7 399,8 Balance 158,4-188,5-214,2-311,2-287,4-424,7-484,3-351,2

50 Current state of economic relations Trade below potential Investments almost nonexistant 9 Brazilian power plants and 15 cement factories equipped with Czech machinery New opportunities with partnership AERO Vodochody- Embraer

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