Brazil Economic Policy

Brazil Economic Policy

Fishing industry

Fishing industry

In the 1990’s there was a major change of course in Brazilian economic policy. It stood in the context of a reorientation of political and social development ideas that took place in several Latin American countries. With the privatization of state-owned companies, the opening up to the world market and the dismantling of market monopolies, Brazil said goodbye to a development model that centered on the state as entrepreneur, financier, guardian and guardian. The upheaval is not yet over. However, its effects on the economy and society are obvious.

While proponents emphasize the regained competitiveness of the Brazilian economy and the increase in foreign investment, critics point to the social costs of the new, as neoliberal development model. Some complain about a lack of continuity in the current transition and blame various blockades on reform.

One of the great economic and political successes under Fernando Henrique Cardoso’s government is certainly the permanent overcoming of inflation through the “Plano Real” from 1994. It is the last and most successful reform plan for the time being, the economic “stagflation phase” – economic stagnation simultaneous inflation – overcome. The stabilization of the currency had a profound impact on the income situation, especially of the disadvantaged population group; 32 million Brazilians made it into the (lower) middle class. Despite this, social inequality is still very high and population discontent is growing.

However, in 2007 Brazil experienced very positive economic development. Real gross domestic product grew by 5.4%, ie two percentage points more than the average for the past two years. Agriculture increased by 5.3%, industry by 4.9%, exports almost tripled, investments rose by 13.4%, reserves in foreign currency totaled US $ 6 billion (Feb. 2008) and were higher than the external debt. In addition, unemployment has fallen and new jobs have been created.

In 2009, gigantic oil and gas fields were discovered off the Brazilian coast. They lie in 3000 m water depth and under a thick layer of salt, hence the name “Pré-Sal”. Brazil has no technology to exploit the oil deposit and is therefore auctioning production licenses to international oil companies.

The global economic crisis that hit the world from October 2008 on did not leave Brazil unaffected. The industrial sector was hit particularly hard. As early as December 2008, 90% of entrepreneurs stated that they had been affected by the crisis. Just like the agribusiness, since the farmers are dependent on short-term financing. Compared to the first quarter of 2008, the GDP of industry in the first three months of 2009 fell by 9.3% and that of agriculture by 1.6%. The country’s total GDP fell by 0.8% for the same period. To fight the financial crisis, the Brazilian government launched an economic stimulus package in December 2008 announced in the amount of the equivalent of 9.8 billion euros. The economy experienced strong growth after the financial crisis, but this has not been so fast and dynamic since 2011.

As a country located in South America according to computergees, Brazil coped with the financial crisis better than expected. Many factors contributed to this surprising economic development. The stable and strong domestic consumption played a major role, as the country was only 14% dependent on exports. Furthermore, the stability of the financial institutions and the currency also contributed to this. But Brazil has been experiencing a sharp drop in growth since 2014: According to the Brazilian press, the economy shrank by 3.8% in 2015 and the country is entering a severe recession a. According to the new Minister of Economics, Henrique Meirelles, the economy will continue to contract sharply in 2016: the national debt is likely to reach 32 billion euros in the current year; The gross domestic product is more than 7% below its peak two years ago; Political uncertainty paralyzes the economy; Consumer demand fell, companies are cutting jobs en masse, and the unemployment rate rose to 13.7 percent in May 2017 (around 14 million people). In addition, production fell in agriculture, industry and the service sector. Michael Temer, the interim president, is planning far-reaching reforms to bring the country out of recession. Unfortunately, there is currently no hope that anything will improve in the short term.

German-Brazilian economic relations

Brazil is probably Germany’s most important contact in Latin America not only as a regional power, but also because of the special weight of German investments. There are currently 1,600 German entrepreneurs in Brazil with an investment volume of around 25 billion US dollars. The compulsory inclusion of the country on German state visits to the continent is only an outward indicator of this high status.

The European Union is Brazil’s largest trading partner with a trade volume of US $ 82.3 billion (2010). In comparison, the volume with China is “only” 56.2 billion US $ and with the USA 46.5 billion US $. This results in a high priority for the relationship between Brazil and the EU, which is expressed every year in a summit meeting. The new bilateral agreement was signed in Brussels in October 2011. For the first time, however, in 2010 there was a deficit on the Brazilian side in the balance sheet of the two partners’ foreign trade. From a Brazilian perspective, there are difficulties in exporting agricultural products due to the difficult European market access and the high agricultural subsidies for European products, as these lead to competitive disadvantages for Brazilian agricultural goods.